Photographer: Brent Lewin/Bloomberg

Mystic Washing Machines Predict Slowdown in Chinese Home Buying

  • Bloomberg gauge indicates sales volume growth slowing in April
  • Moody’s sees tight controls in cities with rapid price gains

The production of washing machines is foreshadowing the future of China’s roller-coaster property market, and signaling that government cooling measures are beginning to bite.

New home sales growth by volume will probably slow this month to less than a third of the pace in March, according to a Bloomberg leading index tracking appliance output in China.

Washer output is a predictor because each machine correlates almost one-to-one with completed new homes, and data on the appliances suggest the government’s campaign to prevent a housing bubble is getting results. In February, the central bank vowed to strictly limit the flow of credit into speculative housing purchases. Last month, at least 64 cities announced new or tougher property-buying restrictions.

“The rapid increase in home sales is simply unsustainable,” said Liu Feifan, a property analyst at Guotai Junan International Holdings Ltd. in Shenzhen. “Households have borne very high leverage in buying homes, and the current urbanization doesn’t support such demand for homes. Looking ahead, home sales will gradually slow.”

Kopi Li and Teresa Huang, analysts at Bloomberg Global Data in Hong Kong, developed the leading indicator after noticing the high correlation between washing machine output and home sales volumes. Their gauge tracks output of the appliances in one month, using industrial production data from China’s National Bureau of Statistics, to project home sales the next month.

“Home buyers need to buy washing machines for their new apartments, whether they plan to live in them or rent them out,” Li said.

Home sales volume growth will slow to 14 percent year-on-year in April, from the 45 percent gain that had been projected last month, Global Data’s estimates suggest. Analysis of previous periods when authorities imposed restrictive policies shows growth may slow to as little as 3 percent, Huang said.

Data for first-time buyers show the purchase frenzy eased in March, as transaction volume growth slowed after local governments ruled more buyers ineligible. Yet, price gains accelerated as buyers sought to get in ahead of any further restrictions.

Property sales are poised to slow, though the outlook for the market remains stable, according to Franco Leung, an analyst at Moody’s Investors Service in Hong Kong. Residential sales volumes will dip, especially in major cities, Leung said in a report Monday.

“The Chinese government will keep in place tight home-purchase controls in cities where prices are rising rapidly and accommodative policies in cities where inventory is high, as part of its ongoing effort to maintain the stability of the property sector," Leung said.

China’s expansion unexpectedly accelerated in the first quarter as property development investment rose 9.1 percent, bolstering demand for products from steel to cement.

— With assistance by Xiaoqing Pi, and Emma Dong

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