Home Prices Surge in China’s Smaller Cities as Risks Spread

(Bloomberg) -- Home prices surged in China’s smaller cities even as property curbs dragged down s in Beijing and Shanghai in June, highlighting the challenge for authorities trying to limit bubble risks.

New-home prices, excluding government-subsidized housing, rose month-on-month in 60 of 70 cities, the National Bureau of Statistics said on Tuesday. That compared with 56 in May.

In Beijing, prices fell 0.4 percent, the biggest decline in two years, and in Shanghai the decline was 0.2 percent. That compared with increases in some smaller cities, such as Bengbu in Anhui, where the gain was about 2 percent, translating into a 17 percent increase from a year earlier.

Restrictions in bigger cities are spurring buying in smaller ones, underscoring the challenge China’s leaders face as they seek to cool asset bubbles and contain risks ahead of a party reshuffle later this year. Sales jumped in June even as mortgage rates climbed and home-buyers grappled with an array of curbs.

“The still-strong demand is mainly panic driven,” said Alan Jin, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “If restrictions are to ease, the panic buying sentiment could turn even more frantic and result in an even bigger bubble.”

Sales Jump

It was the first month in three that the number of cities with price increases has climbed. Data on Monday had showed faster growth in residential sales, along with strength in new residential construction. New-home sales jumped about 26 percent by from a year earlier, the quickest pace since October, according to Bloomberg calculations.

Restrictions on home purchases, already intense in places such as Beijing, have been spreading around the country, with cities including Langfang, in Hebei, and Foshan, in Guangdong, escalating curbs last month.

Housing sales could “possibly” weaken during the second half, given the potential for more curbs and higher mortgage rates, Bloomberg Intelligence analyst Patrick Wong said. “The government is determined to cool overheated markets, mainly in first- and second-tier cities, by rolling out new measures,” he said.