The FTCR China Real Estate Index fell for a fourth straight month to 42.3 in February, dragged by a plunge in sales activity in first-tier cities. This partly reflects the seasonal lull that comes with the lunar new year holiday, with business typically picking up once the week-long break ends. 

Developers across all city tiers reported that prices rose in February, as they have every month since March 2015. However, the pace at which prices are rising has cooled significantly since the government began reining in the housing market in 2016. It will probably maintain its stranglehold this year, meaning a subdued rebound in activity relative to the recent boom years. 

Credit conditions did appear to ease slightly in February; the sum of those developers reporting first-time buyers paying at or above the benchmark rate for their mortgages fell for a third straight month. This followed reports that some local governments are tweaking their policies in some areas to encourage purchases. 

However, those buying an additional home are not benefiting from greater credit availability; a meaningful relaxation of the policies introduced over the past two years is unlikely given the leadership’s determination to control risk, including that related to the real estate market.

Sales in first-tier cities fell at the fastest pace on record in February, but more slowly in third-tier cities than they did in January. Our Home Sales Index fell 1 point to 39.3.

Developers reported that the volume of sales inquiries fell for a fourth month, with our inquiries index inching 0.3 points lower to 43.8.

First-time buyers were again the biggest source of demand (41.6 per cent), with those looking to buy an additional home accounting for 22.3 per cent of buyers, and upgraders making up the remaining 36.1 per cent. 

Developers across all city tiers surveyed reported that house prices rose, as they have consistently since March 2015. The FTCR China Home Price Index rose 0.3 points to 56.2.

The proportion of developers offering discounts fell 0.5 percentage points to 54.9 per cent in February.

The supply of new houses to the market shrank across all city tiers for a fourth month, with our New Home Supply Index falling 1.4 points to 43.

The share of developers reporting rising sales volumes outstripped those reporting supply growth: 20.3 per cent said that transactions had increased, while 15.1 per cent said supply had.

Our Home Sales Outlook Index rose 8.3 points in February to 44.9, but developers across all city tiers expect prices to rise at the same pace or even faster in the coming month, with our Home Price Outlook Index rising 3.8 points month on month to 59.

The number of developers reporting that discounted mortgage rates were available for first-time buyers rose for a third straight month. However, credit remains historically tight, with 54.3 per cent saying buyers are paying rates above the benchmark, the second highest reading in our survey only after January. 

Our Home Sales Index for first-tier cities dropped to a record low of 25; in second-tier cities it fell 2.4 points to 40.2 and in third-tier cities it rose 4.9 points to 44.6.

Our first-tier city house price sub-index fell 4.5 points to 52.3, while the second-tier city sub-index fell 0.9 points to 55.6 and the third-tier city index rose 4.9 points to 59.2.

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.