Real estate investment, a key pillar of China’s economy, is expected to fall back to a “normal” level – about 2% to 3% growth – in the second half of this year, according to Liu Shijin, Vice Chairman of the China Development Research Foundation. “Real estate investment actually would have peaked in 2014 if there hadn’t been an upsurge in 2016. So the year-on-year growth will slip to 2% to 3% in the second half, or even negative growth, due to the high comparison base. But that should be a norm in the future,” Liu said on the sidelines of the World Economic Forum (WEF) in Dalian. Real estate investment in China grew 6.9% in 2016 to hit CNY10.26 trillion, 17.2% of total fixed-asset investment (FAI), according to the National Bureau of Statistics (NBS). The growth accelerated in the first four months of the year to 9.3%, in response to a surge in property sales in previous months, but slowed down in parallel with the sales slow-down. Liu said government measures to curb demand were not enough to rein in the excessive price growth. He suggested the government should instead ramp up “supply-side” reforms. He said it is essential to scale up land supply in top-tier cities. Residential land supply as a portion of total land supply should be doubled to above 40% in these cities, and rural land should also be allowed to be sold. The government should also put greater effort into developing suburban areas and enhancing those regions’ access to hospitals, schools and public transportation to alleviate the over-concentration of resources in downtown areas. The rental market, a long underdeveloped sector in China, should be fostered, Liu added. He said property tax, a long overdue reform, is a “fundamental institution” for a healthy property market and efforts to push ahead with its introduction should be intensified, the South China Morning Post reports.

Fifteen Chinese cities where the strictest measures to curb speculation have been imposed registered slower year-on-year growth in new home prices for another month in May, evidence that the country’s hottest property markets continued to stabilize. The 15 cities, including Shanghai, saw year-on-year price growth decelerating 0.5- 6.4 percentage points compared with April, the National Bureau of Statistics (NBS) said. On a month-on-month basis, six cities recorded new home price gains, unchanged from April. “Around the country, first- and second-tier cities registered the most notable retreats in price growth in both new and existing markets,” said Liu Jianwei, NBS Senior Statistician. “For instance, in the four first-tier cities, year-on-year price growth of new and pre-owned houses both fell for the eighth consecutive month in May.” In second-tier cities, year-on-year price growth of new homes dropped for the sixth straight month in May and price growth of existing homes declined for the fourth consecutive month. Among the 70 cities monitored by the NBS, 29 recorded slower year-on-year new home price increases in May, compared with 30 cities in April. In the pre-owned home market, 18 cities registered slower year-on-year price rises. On a month-on-month basis, 26 cities registered slower new home price growth, an increase of three from April. In the pre-occupied housing market, 30 cities recorded slower growth, a rise of eight from a month ago. In Shanghai, new home prices remained unchanged from April and gained 12.9% from the same period of last year, the Shanghai Daily reports.

More home buyers in China shelved their purchase plans as strictly enforced restrictions to quell speculation continued to bite, resulting in slowing new property sales. More than CNY3.66 trillion of new homes, excluding government-subsidized affordable housing, were sold during the first five months of this year, up 15.3% annually, the National Bureau of Statistics (NBS) said. But the growth slowed from a rise of 16.1% in the first four months and a gain of 20.2% in the first quarter. The area of new homes sold during the five-month period rose 11.9% from a year earlier to 479.57 million square meters, slowing from a 13% increase in the first four months and a 16.9% gain from January to March. Zhang Dawei, Chief Analyst at Centaline Property, blamed the slowing home sales to tightening measures implemented in first and second-tier cities around the country, including stricter home purchase curbs, higher down-payment requirements and mortgage rates, as well as a newly introduced lockup period for home sales.

The rising mortgage interest rate for first-home buyers has intensified the decline in Beijing property sales, but housing prices are not likely to fall sharply, said real estate insiders. The Bank of Beijing has raised its benchmark mortgage rate for first-time buyers from 4.9% to 5.39%. China Minsheng Bank also hiked the benchmark by 10 percentage points. Early in May, major banks, including Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and China CITIC Bank introduced a 4.9% benchmark mortgage rate and hiked the benchmark for second properties. “The increasing mortgage rate has lowered the expectations of many first-time buyers. It means the cost of buying property will keep going up,” said Guo Yi, Marketing Director of real estate consultancy Yahao. Take a CNY1 million loan for example. With the benchmark interest rate, buyers need to pay CNY5,788 per month while after the interest rate rise, the monthly payment will increase to CNY6,075. According to the Beijing Municipal Commission of Housing and Urban-Rural Development, May saw a dramatic 70% drop in second-hand property sales compared with April. Real estate agency 5i5j said its online sales of second-hand property in Beijing had slipped by 39.3%, marking a new low since 2015.

Liquidity pressure has forced some banks in Shanghai to stop offering housing loans by raising interest rates for first home buyers. Some branches of CITIC Bank have halted mortgages after the bank hiked the rate for first home buyers to 1.2 times the official lending rate of 4.9%. China Minsheng Bank also raised the rate to 1.1 times the official rate, but most banks in Shanghai kept mortgages for first home buyers unchanged.

Residential property prices fell in Beijing for the second straight month this year, led by declines in outlying suburbs like Tongzhou and Yizhuang, after a succession of price-curbing measures taken by the government. The average transaction price of pre-owned residences declined 2.4% in May from a month earlier, following a 6.8% drop in April, according to 5i5j, the second-largest real estate agency in the city. Transaction volume and prices fell month-on-month in 10 of the 14 districts. Property transactions have cooled dramatically since March 17, when the Beijing municipal government enacted a rule that required second-property buyers to put down 80% of the property’s value as deposit to secure a purchase, the highest proportion in the country. Home owners with existing mortgage loans, even if they have already paid off their loans, are still defined as prior-home owners and thus are subject to the higher down payment. The majority of transactions in Beijing are by people selling their existing homes for a new one, so the tough definition of ‘first-time buyers’ is a big hit to demand. “If one customer can’t sell his home, he can’t buy the next, whose owner may also be trading up, so the whole curb causes a chain reaction,” said 5i5j’s Vice President Hu Jinghui. Sales dropped 39% in May, after declining 35% in April, 5i5j said.