Property prices in China rose further in May. Sixty-nine of 70 cities have seen prices increase from a year ago, up from 68 cities in April. Five cities, including Beijing, Shanghai, Xiamen, Guangzhou and Shenzhen, saw double-digital price increases.
In a report, Nomura says the rise in property prices are driven by loose liquidity conditions during the first quarter. The bank observes that there is a lead-lag relationship between M2 growth and property prices in China.
Therefore, future property prices depend on China’s monetary policy. Nomura believes China’s central bank will remain put in the short term in order to contain financial risks in the economy, at least until second quarter economic data is released mid-July.
Other banks, including ANZ (Australia and New Zealand Banking Group), thinks there is no relationship between nominal interest rates and property prices. The bank points to the fact that China’s property market is still going strong even with the highest interest rate in the world.
ANZ believes that the People’s Bank of China need to cut interest rates to support the sluggish economy. A rate cut won’t trigger more speculation in the property sector, it predicts. On the contrary, ANZ believes a rate cut will reduce the incentive for capital inflows, which is helping to fuel the property market upswing.