What’s going on?

Be rational when buying a house, don’t just blindly follow others.

That was the fairly humdrum advice being given to potential homebuyers as they crammed into a gymnasium in Beijing late last month.

Southern Weekend reports that a property developer had rented out the gym to accommodate tens of thousands of people who were turning up to buy an apartment in a new project in the capital. There was similar momentum elsewhere in the city.

New apartments at Xuhui E Tiandi sold out after just two hours, for instance, while another project developed by China Resources Land ran out of units in only an hourmore. “Apparently, buying a house is like winning a lottery ticket, it all depends on luck,” one homebuyer grumbled.

More than six months after the central government started to release its grip on measures designed to rein in property sales, home prices are creeping up again. Prices rose 9.5% year-on-year in September and last month they were up 10.7% on average, the highest rate since data tracker China Real Estate Index System began keeping records in June 2011.

In leading cities like Beijing and Shanghai, there are signs that the former euphoria is back in abundance. Home prices in Beijing leapt 16% in September from a year earlier, picking up from large increases of previous months. Shanghai’s prices also jumped 17%, and new homes in Shenzhen and Guangzhou were a fifth more expensive.

Not wanting to miss out, couples have resorted to extraordinary measures to get a stronger foothold in the market. The city government of Beijing reports that applications for divorce soared by 41% to nearly 40,000 in the first three quarters of 2013, surpassing the total figure for 2012. The implication is that many of the couples are filing for divorce to sidestep tax regulations that took effect in March mandating that a couple selling a second property must pay capital gains tax of 20% (singles selling their sole property are exempt, if they have owned it for five years or more).

Reviving sentiment in the real estate market is a mixed blessing for Party leaders as they gather on Saturday for the Third Party Plenum. Further surges in prices will fuel concerns about rising social inequality, frustrating those who are unable to afford their own homes. But the exuberance in the market will calm fears that earlier clampdowns might have taken too much steam out of the wider economy, as well as putting excessive pressure on local governments, who rely on land sales to fund much of their budgets.

Investors also have a lot at stake. So far this year Chinese property developers have issued $23.7 billion of overseas bonds, almost three times the previous record from 2009. But only one of the property bonds that priced this year was investment grade, with a handful in triple B territory, says the South China Morning Post.

“If there is a slowdown in property sales, the firms that have issued particularly high-yielding instruments may have problems meeting their coupon payments,” one research analyst warned.

A closer look at home price growth suggests that price increases have largely been concentrated in the major cities, where there is still a shortage of supply. Such disparities are not new. Beijing and Shanghai often report booming sales, while other parts of the country remain sluggish.

Wenzhou is one of the laggards. Hit hard by weakening exports and slowing investment, property prices in the city in Zhejiang province continue to slump. Average new home prices declined by an annualised 1.8% in September.

Haikou in Hainan province isn’t faring much better, edging up 1.1% as it grapples with a problem of oversupply.

“Polarisation is now very serious. Home prices in some second-tier cities are shaky,” says Eliza Liu, chief economist at CCB International.

In a market as large as China it’s notoriously difficult to generalise about national trends, especially as the real estate data is often fragmented or incomplete.

It’s also clear that a top-down approach to implementing policies across the sector at a national level isn’t going to work.

Hence analysts report that the central government is allowing more local officials to come up with property measures of their own instead of imposing national policies.

“The regional differences across China’s property market are very pronounced. Therefore the introduction of a unified national property tightening policy is no longer necessary,” real estate expert Yin Zhongli told the Chongqing Business News.

This week the Shenzhen government announced that it will raise minimum downpayments on second home purchases to 70% from 60%, says China Securities Journal. The capital city, Beijing, also introduced tightening measures in late October. Shanghai is reported to be mulling new measures of its own.

In other cases, local governments want to relax earlier tightening. Wenzhou now allows families to buy two homes, instead of just one. Wuhu in Anhui province, which wants to attract a more educated workforce, has even been trying to encourage university degree holders to buy property by exempting them from deed tax and offering other upfront subsidies.

Meanwhile for those outside China – particularly investors – that are trying to assess the broad implications of all the data that Chinese real estate generates, WiC can only console that parsing what is going on doesn’t get any easier…

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