Rise in fuel, home prices stirs debate

Analysts, experts wonder if there's a correlation linking rare simultaneous spikes in markets

Prices of fuel and homes generally vary inversely, but sometimes they may tango, creating uncertainty like they are doing now in China, analysts said.

Gasolene prices were hiked on Sept 17 as global crude oil prices continued to rise. It was the second hike in days as domestic gasoline and diesel prices were raised by 170 yuan ($24.8) and 180 yuan per ton on Sept 4.

Any further rises would take overall hikes to between 200 yuan to 400 yuan per ton in just a few weeks, according to Jia Tingting, an industry analyst with chem99.com, a Shandong-based commodity information provider.

Since January this year, the domestic fuel price has seen 18 changes, up 11 times and down seven times.

Around the same time, home prices in 98 percent of the 70 cities tracked by the National Bureau of Statistics rose, evoking memories of the peak of September 2016, said Zhang Dawei, chief analyst at Centaline Property Agency Ltd.

Yan Yuejin, director of E-house China Research and Development Institution, a Shanghai-based real estate information and research services provider, said: "The price fluctuation represents the price changes of commodities; so, when the cost of fuel rises, home prices go up, and prices of all the raw materials used in construction also rise."

Chen Jie, a professor who specializes in real estate and urban development at Shanghai Jiao Tong University, however, has a different view. "We can't simply correlate oil or fuel prices and home prices in this way without taking other factors into consideration, as the rise in commodity prices will increase the cost of daily consumption. And if it goes worse to harm the physical economy, the situation will get even worse as people will see their effective salary shrink. Some may even be out of work."

If fuel prices rise, it is more likely homebuyers will look at downtown areas to avoid costly drives on a daily basis. As such, home prices around the city center will rise while those in suburban areas will fall, Chen said.

Analyst Kang Hui, however, said when fuel prices rise, home prices travel south generally. "The NBS data is a bit lagging as it is collected after the deals are completed, and the August data also showed top-tier cities' home prices are much more stabilized than those in lower-tier cities."

According to him, preowned home prices in Beijing have declined about 20 percent year-on-year, and prices in more cities will follow suit as their local price-control policies are about to take effect.

Home prices were reined in across the nation an unprecedented 315 times so far this year, and 45 cities have launched measures more than 55 times to combat housing fever in August, according to Centaline Property data.

In Shanghai, transactions for preowned homes declined month-on-month for three months in a row since June, and so have prices, said Chen Min, general manager of marketing with residential property agency Shanghai Lianjia.

"A piece of good news for homebuyers is they would have more choices because preowned home prices are seeing a downtrend due to high inventory, and the market is in favor of them," Chen said.

According to the latest reforms in China's oil pricing mechanism, the National Development and Reform Commission will not cut domestic retail fuel prices when international oil prices fall below $40 a barrel, and the price will not be raised if international oil prices rise above $130 per barrel.

Under such a mechanism, China will adjust domestic prices of refined oil products when international crude prices translate into a change of more than 50 yuan per ton for gasoline and diesel for a period of 10 working days, but will not do so if the international prices go below $40 or above $130 a barrel, according to a Xinhua report.