We believe that we now have a bubble in many cities, particularly the big ones. The central government is trying to deflate these bubbles gently, rather than pop them. The fact that prices have been at these levels before suggests this can be accomplished, as it was last time. But this does not mean that the land market will not experience pain during 2010-11.
That’s Standard Chartered on the matter of Chinese land prices on Monday.
To help put the bubble fears in recent perspective, the bank also provide the below chart reflecting average national land prices on a year-on-year percentage three-month moving average basis:
As can be seen, that’s a significant turnaround in 2009.
Now, that’s not an increase that’s necessarily seen everywhere. According to Standard Chartered there’s actually a lot of variation in land prices across China’s different cities, a fact that skews the national average data, hence the use of a three-month moving average above.
Generally it’s the expensive cities that have seen the bulk of the land-price rises.
As they put it:
Prices obviously vary across cities. In Shanghai, the average land price had reached CNY 4,454 (USD 655) per sqm by the end of 2009. In Chengdu, it had reached only CNY 1,159 (USD 170).
This means the national average may not be a good guide to what is really going on in every city. But when we look at individual cities, the same problem presents itself on a smaller scale: the data includes land sales near the city centre as well as far into the suburbs. It is very hard to control for location. The only thing we can do is to calculate a three-month moving average for each city’s prices to smooth some of the resulting volatility..
Although even the use of a three-month average might underestimate the concentration of the land-prices rises, according to the analysts:
….if the land sold in each city is progressively further out from the centre (as we suppose it is), then the data here will underestimate the scale of the price rises.
The general conclusion, nevertheless, is that expensive Chinese cities got more expensive in 2009 (in percentage terms) than cheaper places did, while many cheaper cities do not yet appear to have surpassed their previous highs.
Here’s a breakdown:
Related links:
China’s (un)real GDP – FT Alphaville
And now for a Chinese real estate crash? - FT Alphaville