(Anthony Kwan/Getty Images)
China's property market is staging a major turnaround as property prices in tier-1 cities have heated up quickly over the past few months.
For the first quarter, residential prices in Shenzhen are up nearly 80% year-over-year, while those in Shanghai were up by roughly 65%, according to figures cited by Capital Economics analysts.
And the surge in residential property sales throughout 2016 has been driven by the loosening of some purchase restrictions at local levels and rate cuts, which have reduced mortgage costs by a significant amount.
In the short run, this is good for growth. Already China's GDP breakdown showed an uptick in real-estate-related services in the first quarter, as the analysts at Capital Economics observed.
But not everyone's jazzed about what's going on.
(Capital Economics)
"Some are concerned that the rapid pick-up in sales signals a return of speculative behaviour perhaps linked to the inflation of a property bubble," wrote Capital Economics' Mark Williams and Julian Evans-Pritchard in a recent note to clients.
They continued: "In particular, there are concerns that these rapid price gains are the result of a relaxation in lending standards that has echoes, some suggest, of the run-up to the subprime mortgage crisis in the US."
Notably, the Capital Economics duo suggests that there is some truth to these worries.
As they explained in their research note (emphasis added):
There have been cases of buyers skirting mortgage restrictions and borrowing to cover down-payments. What's more, prices are extremely stretched in some cities. Our calculations suggest the ratio of prices to average incomes in Shenzhen hit 76 at the end of last year, even before the latest surge in prices. This figure isn't directly comparable with equivalent ratios for other parts of the world since the data we have for China only cover sales of new property which are skewed towards the luxury end of the market. But even by the city's own standards the ratio is worryingly high at almost twice the 15-year average. A sharp correction in prices at some point seems likely.
Moreover, interestingly, a report from Bloomberg News from early March noted how "leveraged speculators are snapping up homes in top-tier cities [in China] in hopes that prices will keep surging."
(Capital Economics)
"People are a bit crazy in this market, but what can you do?" Liu Yihui, a 35-year-old civil engineer who took on a mortgage to buy an an apartment in Shenzhen as an investment property that he is renting out, told Bloomberg News. "