#1. History of Chinese Real Estate in One Chart

Topics: Real Estate, GDP, Price Indices

Oct 20, 2021

This is China Charts. We are a pair of finance professionals with boots on the ground in China, each with 10 years of experience in the country. We love charts, mainly because of their ability to tell so much. In this newsletter we create and gather informative charts on the Middle Kingdom. Feel free to get in touch about deep dives on companies and data sets.

I. Real Estate

Month on month price change of newly built flats in China. 70 cities for which data available plotted along Y-axis. Heatmap colours going from minimum of -4.9% (white) to maximum of +8.2% (red), average being +0.4% (orange) with median +0.1% month on month. September 2021 the first month since 2015 to show price drops across most cities. Grouping of cities by likeness of price increases presented via dendrogram (hierarchical tree lines on LHS), suggesting 2 main groupings — Group 1 (Fuzhou to Xiamen) and Group 2 (Jilin to Wenzhou), with Shenzhen being an outlier to both.

Key takeaways:

Prior to 2016, ups and downs were all in tandem, uniform, and wave-like across cities. Very clear cyclicality. Notice the same colours vertically: orange (2012), reddish (2013), white (2014). Distinct groups (Group 1, Group 2) formed thereafter.
Performance of cities after 2016 not driven by tier level (there are 6 official city tiers in China), there are other considerations. Group 1 shows a very red wave in 2016 but not later in 2018, Group 2 shows generally red wave in 2018 but not earlier in 2016. Plotting these groups on a map (see lower) suggests Group 1 are coastal cities, whereas Group 2 are inland.
Price drivers become increasingly localised / idiosyncratic after 2016. Notice increasingly checkered colour patterns. Especially in Group 2.
Shenzhen being an outlier makes sense since it was the first special economic zone in China’s opening up, evolution of policies and price drivers there may still be different compared to rest of country.

If to plot a few select cities from heatmap above as a time series (viewed from side), you get this chart. Again, notice the uniform cyclicality prior to 2016 and increasing divergence in performance and timings thereafter.

Mapping the two groups onto maps you get the following. Group 1 pins (blue) are clustered towards the coastal regions. Group 2 pins (red) are mostly inland.

Originally, we came across this great chart from Real Estate Foresight which groups cities by tiers. (There are 6 tiers in China, with Beijing and Shanghai among Tier 1). As the green streaks, especially in 2016, do not cluster by tier, that got us thinking to make the alternative city groupings as already shown on the orange-red heatmap at top of article.

And below is why the property market matters so much in China. It dwarfs everything else. (Chart found in messaging group without attribution. If you know the source please let us know and we’ll update).