House Prices Rebound: A Glimpse into the Chinese Housing Market

The Chinese housing market has been on a rollercoaster ride in recent years, with prices soaring and then plummeting, only to rebound once again. In 2015, the market experienced a significant upturn, with home prices rising sharply. This rebound has left many market observers scratching their heads, wondering what factors are driving this trend and whether it is sustainable.

One of the primary factors driving the recent rebound in house prices is the undersupply of housing. According to FT Confidential Research, demand for housing is recovering faster than supply is being increased. In the first eight months of 2015, residential floor space sold rose by 8% year on year, while the amount of floor space completed fell by 17% (FT Confidential Research, 2015). This undersupply has led to a rapid drawdown of housing inventories, with the equivalent of 10.3 months of sales available in August 2015, the lowest level since March 2014 (FT Confidential Research, 2015).

Another factor contributing to the rebound in house prices is investors switching from equities to housing. As China's stock market bubble deflated, investors have been switching their investments from equities to housing, driving up demand and prices (FT Confidential Research, 2015). However, there is little evidence to support this as a significant factor, with only 17% of consumers surveyed in August 2015 planning to invest in real estate in the coming months, compared to 41% planning to buy stocks (FT Confidential Research, 2015).

The sustainability of this trend depends on various factors, including the pace of new housing supply, the government's policies on housing and land, and the overall economic conditions. If the undersupply of housing persists and demand remains strong, house prices may continue to rise. However, if the government implements policies to increase housing supply or if economic conditions deteriorate, the trend could reverse.

In addition to these factors, government policies, such as tax incentives and housing regulations, play a significant role in shaping the housing market and house prices. In China, for instance, various housing market policies have been issued to moderate house price increases and prevent bubbles. A study found that suppressive housing market policies, including monetary, land, tax, and down payment-related policies, had a significant negative impact on house prices (Chen et al., 2022). For example, the implementation of a 20% down payment requirement in 2010 led to a significant decrease in house prices in China (Chen et al., 2022).

In conclusion, the recent rebound in house prices in China is primarily driven by the undersupply of housing and investors switching from equities to housing. However, the sustainability of this trend remains uncertain, and government policies play a crucial role in shaping the housing market and house prices. As the market continues to evolve, investors and policymakers alike must remain vigilant and adapt to the changing landscape.

References:
- FT Confidential Research. (2015). China's housing market: The rebound continues. Retrieved from
- Chen, Y., Wen, L., & Zhang, Y. (2022). The impact of housing market policies on house prices in China. Journal of Housing Economics, 61, 100976.