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Source: Time Weekly Author: Ali Mire

The polarization in Xi'an's real estate market continues.

On August 15, the National Bureau of Statistics released the price changes of commercial housing in 70 large and medium-sized cities in July. The data showed that the sales prices of commercial housing in the 70 cities fell month-on-month, and the year-on-year decline slightly increased. Different from the overall downward trend, the price of new houses in Xi'an attracted a lot of attention.

Specifically, in July this year, the sales of new houses in Xi'an increased by 0.2% month-on-month, tied with Shanghai for first place in the country; the sales of new houses in Xi'an increased by 3.4% year-on-year, ranking second in the country.

Unlike the rising prices of new homes, Xi'an's second-hand home prices are still falling. Data shows that in July this year, Xi'an's second-hand home prices fell by 0.6% month-on-month and 5.9% year-on-year. Judging from the situation in the first seven months, the year-on-year decline in second-hand homes has been expanding, while the month-on-month decline has narrowed since May.

So, what is the reason for the rise in new home prices in Xi'an? What is so special about this city? What does the decline in second-hand home prices indicate?

New home prices have led the rise several times

As early as September 2021, Ms. Lu and her family had been running around among various real estate projects just to find a suitable school district house so that their children could enjoy high-quality educational resources and learning environment when they enter elementary school in the future.

At that time, Xi'an was in the midst of a hot real estate market, with the unit price of new houses climbing to around 15,000 yuan per square meter. Due to the high housing prices and the purchase restriction policy, Ms. Lu had to turn her attention to the fringe areas of the city. "It is not easy to buy a satisfactory house. Either the price is too expensive or the location is too remote," Ms. Lu told the Times Weekly reporter.

In this way, Ms. Lu's house-hunting process lasted for two years. During this period, she witnessed the adjustment of national real estate policies, including the gradual relaxation of purchase restrictions, the reduction of down payment ratios, and the reallocation of educational resources. With the support of this series of favorable policies, Ms. Lu's house purchase plan was finally put on the agenda, and she bought a new house in July this year.

Under the guidance of multiple policies, market sentiment has indeed been boosted. Statistics show that except for a 0.1% month-on-month decline in May, Xi'an's new home prices have been on the rise in January-April and June and July this year, and have led the country many times.

High-rise residential buildings in the city Source: Tuchong Creative

In addition, Guan Rongxue, senior analyst at Zhuge Data Research Center, told the Times Weekly reporter that the reason why the price of new houses in Xi'an can increase is not ruled out to be related to the improvement of Xi'an's urban status and population attractiveness in recent years. The population growth has directly led to an increase in housing demand.

As an important educational center and old industrial city, Xi'an does have a strong population appeal.

By the end of 2023, Xi'an's permanent population reached 13.0782 million, an increase of 82,300 people over the previous year, and the population growth ranked seventh in the country. From the perspective of population composition, with the general decline in birth rates, most of Xi'an's population growth is influx of population.

If we dig deeper into the reasons behind this, on the one hand, it is due to the relaxation of the household registration policy in Xi'an, and on the other hand it is also closely related to the local economic development.

In terms of household registration policy, Xi'an has relaxed the conditions for settling in the city several times since 2017, especially for college students nationwide, and implemented a policy that only requires student ID and ID card to complete the settlement procedures online, which is also called "the most relaxed household registration policy in history" by many people. As the threshold for settlement continues to be lowered, the city's net inflow of population reached 887,900 in 2017 and 2018.

Liu Qihong, director of the Regional Economic Research Center of Hohai University, told the Times Weekly reporter that in addition to new energy vehicles, electronic information and solar photovoltaic industries are also prominent in Xi'an. "Therefore, the concentration of industries will create a large number of employment opportunities, which in turn will attract population migration and provide Xi'an's real estate market with continuous and stable housing demand."

However, the growth in housing demand driven by population influx is only one of the factors that has made Xi'an's real estate market active. Guan Rongxue also believes that from the perspective of land supply, Xi'an's land prices have been on the rise in recent years. As land prices rise, the momentum of the primary market being transmitted to the secondary market has become more significant.

Second-hand housing market sentiment is sluggish

Unlike the rising prices of new houses, the prices of second-hand houses in Xi'an are declining.

Data shows that in July this year, Xi'an's second-hand housing prices fell by 0.6% month-on-month and 5.9% year-on-year. From the situation in the first seven months, the year-on-year decline in second-hand housing prices has been expanding, while the month-on-month decline has narrowed since May.

Not only Xi'an, the latest data on housing prices in 70 cities show that second-hand housing prices in second- and third-tier cities fell year-on-year in July. "However, this is basically in line with the supply and demand relationship of second-hand housing, that is, second-hand housing itself is in a continuous and comprehensive price adjustment stage, and the decline itself is also the result of the continuous adjustment of supply and demand," Yan Yuejin, deputy director of Shanghai E-House Real Estate Research Institute, told the Times Weekly reporter.

Guan Rongxue believes that it is possible that with sufficient supply and improved quality of new houses, the second-hand housing market will face certain competitive pressure and owners will have to choose to lower their prices. This also means that there is a phenomenon of "trading price for volume" in the second-hand housing market.

Image source: Tuchong Creative

However, even with the price reduction and policy support, in the eyes of many people in the industry, the liquidity of second-hand houses in Xi'an is still poor.

According to Mr. Feng, a real estate salesperson in Xi'an, only about 10% of the properties in Xi'an's second-hand housing market had good liquidity from January to July this year. These properties are mainly distributed in areas with rich educational resources or around well-known school districts, as well as areas with complete transportation facilities, and the buyers are mainly those who have just-in-time needs and those who want to improve their living conditions.

"In the past, according to conservative estimates, the monthly transaction volume of second-hand houses in Xi'an was 9,000-12,000 units. Now the monthly transaction volume is basically around 7,000 units. It can be clearly felt that more than 80% of customers have a wait-and-see attitude." As for the reasons why buyers generally take a wait-and-see attitude, Mr. Feng said that the main factors are the insufficient financial ability of some buyers and the uncertainty about the future trend of housing prices.

According to Anjuke data, the average second-hand housing price in Xi'an was 12,970 yuan per square meter in August. "Although the second-hand housing price in Xi'an is at a medium level nationwide, in terms of income, the monthly salary of most people is around 4,500 yuan. Even if both husband and wife are office workers, their overall income is still not enough to easily cope with the high housing prices," said Mr. Feng.

Regarding the future trend of Xi'an's real estate market, he believes that Xi'an's second-hand housing market may continue to be weak by the end of the year. Relatively speaking, the new housing market may maintain its status quo in the short term. However, from a long-term perspective, in areas of Xi'an with high population density, prosperous business, and complete supporting facilities, the new housing market will be relatively hot.

It is worth noting that Guan Rongxue believes that the long-term continuous rise in new home prices in Xi'an will squeeze the purchasing power of some buyers, and the weakness of the second-hand housing market may also have a certain impact on the new home market. Therefore, it is expected that the subsequent housing price trend will be mainly "stable".