China house prices growth still fragmented

China house prices rose further in March, but in some cities a bubble could be building up. Large sum of money in China, chasing investments. First it was the housing market last year, then it shifted to equities, then to corporate bonds and again it is piling up in housing sector and the trend could persist for long as government is providing additional stimulus.

Moreover, diminishing divergence suggests, money is once again flowing to the housing sector in general. In February house prices were up in 47 cities among 70 surveyed and in March that figure grew to 62.

However economic stability is at risk as price rise is more concentrated in Tier I cities, namely Shanghai and Shenzhen. In Shanghai prices were up 3.6% on monthly basis and up 25% from a year ago and Shenzhen it is up 3.7% m/m and 61.6% from a year back. The trend is a lot divergent on yearly basis. 40 among 70 cities saw rise in prices from a year back compared to 62 on monthly basis. To provide relief to the sector, People’s Bank of China eased lending rules, more to pop up prices in Tier III and Tier IV cities, where large piled up inventories remain a drag.

China’s GDP, which grew 6.7% in first quarter, saw large contribution from housing sector, as house sales surged 33% in first quarter, fastest pace in two years and property investment grew 6.2% highest in a year.

So far, government efforts to cool rapid price rise in cities like Shenzhen, Shanghai remains cool.