They say that history tends to repeat itself and for the China housing market, and its constantly repeating cycle of bubbles, that certainly seems to be the case. It seems like just yesterday that we pointed out the following video of ghost towns springing up all over China with millions of square feet of newly constructed residential living space but not a single resident.
And now, as we've pointed out numerous times recently (see posts here and here), China's home prices are bubbling up all over again. Prices in China's smaller cities, in particular, are seeing the largest gains as buyers from the larger tier one cities go hunting for "bargains." In fact, per a recent account from Reuters, home prices in the city of Changsha have risen 30% in two months all while 13.5mm square meters of residential real estate remains unoccupied.
"Prices have risen 2,000 yuan ($299.84) per square meter on average in the past two months. That's almost a 30 percent rise from July," said Hu Yi, marketing manager at Central Courtyard, a residential project in Changsha targeting mid- to high-end buyers.
Chen Xiaochuan, marketing manager with local residential property project Xiang-Shore Park said speculators make up about a third of homebuyers in Changsha.
They are mainly from first-tier cities such as Shanghai and Shenzhen, property agents said, but are also from Hefei, where home prices have doubled since the start of the year.
China Index Academy data shows there are 126,945 homes, or 13.46 million square meters, sitting empty in Changsha.
But Changsha isn't the only city where home prices are bubbling over. Prices in the Zhengdong district have risen two-thirds this year with sales managers in the area caught off guard, "Even we didn't expect the prices to go up this much."
"We have already bought an apartment here, and we are looking to buy a second one," a woman who goes by her last name Wang told Reuters just outside of project's sales office.
"We see a flux of buyers from people outside of Zhengzhou, especially those from smaller cities in the same province," Xu said, who apologized for his raspy voice, which he said was due to one too many sales pitches.
And for Zhang Liyang, a sales manager at Greenland Group's HK.600606 Zhengzhou office, the price surge in the past few months came as a surprise, which meant missed opportunities as she was entitled to employee discount rates.
Of course, as we've pointed out numerous times, and confirmed here with data from Deutsche Bank's China Chief Economist, Zhiwei Zhang, the whole thing is yet another debt-fueled bubble that will inevitably come crashing down again at some point in the not-so-distant future.
Per the chart below, accompanying China's booming property market is a surge in mortgage loans with LTV's skyrocketing to 71.2% in recent months, twice the level in 2016H1, 34.8%, which was already much higher than its peak, around 25%, in previous years.
Meanwhile, DB points out the average land auction premium for tier 1 cities rose from around 40% at the beginning of the year to over 90% by August. In tier 2 cities it soared to almost 70% from 25%. Note, these are premia to asking prices not even YoY price changes...seems very reasonable.
And, of course, pricing growth is almost perfectly correlated with credit expansion.
But, just like last time around, its probably nothing...