Home prices were picking up slightly in the recent months while transaction volumes rose after many local governments “fine-tuned” (translation: ease) policy and the PBOC cut interest rates twice. Although we did not think that this is the true bottom for Chinese real estate, obviously it has got the government somewhat worried that it will be indeed a sustained recovery. Thus it has become quite obvious now that the government is holding back in terms of stimulus as it fears that home prices will rebound strongly (along with the concerns that massive stimulus will fuel inflation again).
The so-called “rebound” in the real estate market, however, seems to be running out of steam. NBD.com.cn reports that transaction volumes in the first two weeks of August were down by 5.8% compared with the previous two weeks, citing figures from Homelink, a property agency, while some prices of new homes from some real estate developers are coming back down slightly again. That is, of course, before the Chinese government has announced any concrete measures to actually tighten the market again, except reiterating that tightening remains in place and sending teams of inspectors around the country to investigate the tightening measures of local governments.
So far, we maintain our view that this so-called “rebound” will be short-lived, although we are not certain if the apparently slowdown of activities in August actually marks an end. September and October are traditionally the peak season in Chinese real estate market. It will be interesting to see if this remains the case this year (as a reminder, the “golden” week obviously did not quite work its wonder last year).
For the government, the dilemma remains. The government does not want to see a complete collapse of the real estate market, but it does not want to see strong rebound either. While the slowing economy and the absence of inflationary pressure for the time being call for more active measures to stimulate the economy, the fact that home prices held up is making the government hesitant regarding stimulus. On the other hand, even though rapidly falling home prices opens more room for stimulus, it will put even more pressure to real estate developers and speculators and force them into deleveraging, hurting the economy further before it can get better.
For the time being, we still do not see new harsh measures to actually be implemented, and with the real estate prices more resilient than one has hoped for, we suspect that the government will be relatively slow to ease policy despite the economy showing very few signs of recovery.
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