China’s real estate market cooled further in May as more cities were ordered to bring speculative activity under control. 

Our headline real estate index fell 3.3 points to 56.2, with fewer developers reporting that sales and prices were rising. 

However, the results of our latest developer survey also suggest the Chinese housing market — the big driver of economic growth — is continuing to expand at a reasonably fast clip, despite earlier expectations of a slowdown. 

An average read of January-May activity suggests the pace of expansion so far this year has been the fastest since 2016, when the government loosened policies across-the-board to support economic growth. 

The government has since struggled to control the animal spirits that drive the housing market. Our latest consumer survey found 68 per cent of respondents saying they expect house prices to rise in the coming six months, the most since last July, including 18 per cent expecting a gain of more than 10 per cent. 

Sentiment towards housing has strengthened this year, even though the central government continues to insist there will be no relaxation of its stringent policies designed to rein in the market, captured by its mantra that a “house is for living in, not for speculating on”. Demand appears undimmed, even though buyers are still having to pay relatively high mortgage rates and put down large deposits. 

On the one hand, the leadership sees the housing market, and the debt that funds it, as a key risk to financial stability. But the sector also provides much-needed growth at a national level and plays a crucial role in filling local government coffers. 

While Beijing has quietly allowed some cities to loosen their housing policies since the end of last year, the burst of activity at the start of 2019 has alarmed the authorities. More and more local governments are being called out for allowing prices to rise too quickly, including four in May, following six in April.

The FTCR China Real Estate survey is based on interviews with 300 developers in 40 cities. For further details click here. This report contains the headline figures from the latest Real Estate survey; the full results are available from our Database.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.