Posted by on November 18, 2016 2:27 pm
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Categories: Business China Chinese property bubble Economic bubble economics Economy Financial crises Housing Bubble Housing Starts National Bureau of Statistics peer-to-peer Real estate Real estate bubble Shenzhen stock market Stock market crashes Systemic risk

On one hand, China’s recently implemented home-buying curbs to cool the runaway property market worked in October, when following a slump in property sales volume new-home prices gained last month in 62 of the 70 cities tracked by the government, declining from the 63 recorded in September, the National Bureau of Statistics said Friday. Prices dropped in seven cities, compared with six a month earlier. 

According to Goldman’s population-weighted calculations, house price inflation decelerated across all tiered cities: In tier-1 cities, October price growth was 0.9% month-over-month after seasonal adjustment, down visibly from the 3.1% month-over-month growth in September. In tier-2 cities, housing price growth was 1.5% month-over-month in October, vs. 2.7% in September. Price growth was also lower in tier-3 and tier-4 cities.

“The property market in China’s first and second-tier cities apparently has cooled in October, while it remained relatively stable in third-tier cities,” Liu Jianwei, a statistician from China’s NBS said in a note accompanying the data.

Housing price growth slowed in October on the back of tightening measures

Source: GS

“Buyers and developers are now taking to the sidelines, creating a standoff in the market,” said Xia Dan, a Shanghai-based analyst at Bank of Communications Co.

As confirmation that its bubble-busting policies are working, China’s statistics bureau said that home prices in first-tier and red-hot second-tier cities “apparently cooled” in the second half of October after those regions announced fine-tuned curbs. Monthly growth slowed in most of China’s first- and second-tier cities. Five cities, from the capital Beijing to southern port city Xiamen, snapped a streak of price gains. New-home prices in Shenzhen, the nation’s hottest property market earlier this year, fell 0.5 percent in October from September, the first decline since October 2014 suggesting restrictions in the hottest markets to curb speculative
buying are starting to bite. Prices in Beijing fell 0.4% in the second half of October, and declined 0.1 percent in Shanghai.

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On the other hand, Beijing’s curbs have a long way to go as October home prices grew at the fastest rate since record-keeping began in 2011, despite a significant slump in property sales volume as local governments stepped up measures to cool skyrocketing prices, and as more discriminating buyers appear to have stepped back from the recent buying frenzy. Despite the fewer transactions, the average property price change in October was up a whopping 12.7% YoY, another record high, following September’s 11.7% surge from the prior year.

Year-over-year basis price growth continued to increase to new all-time highs.

Source: GS

As we noted in the late summer, in an attempt to cool China’s second housing bubble in three years, the housing ministry cracked down on rogue players, started investigating developers and agents for alleged false advertising, urging probes on “illegal” sales and cracking down on investment by online finance and peer-to-peer lenders.

A cooling of the property market may provide some relief to policy makers, who are seeking to avoid a housing bubble without denting economic growth.

It may have its work cut out for it however: in a nation in which capital spending and building empty cities has been synonymous with growth for a decade, even amid the curbs in major cities, property development investment rose 13% from a year earlier in October, the most since at least 2015, Bloomberg calculated. New housing starts, an early indicator of real estate investment, gained 20% from a year earlier, the biggest increase since April.

As Liu Feifan, analyst at Guotai Junan Securities, confirmed, the drop in sales volumes in cities that have imposed restrictions was “a lot milder” than he expected, adding that the 10% drop in transactions was below his prediction of more than 30%, suggesting that the euphoria mentality is still present.

“But momentum is going to slow further, otherwise authorities will step up curbs,” Liu said.

The good news is that just as the housing bubble is bursting, China has not a new commodity market euphoria to look forward to, but a fledging stock market bubble to boot, just like in 2015. Because in China, with its roughly $30 trillion in deposits, bubbles never go away, they just roll over from one asset class to another.

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