China’s big effort to cool the property market is nothing but theatre, says Andy Xie in his latest column for Caing.
Proof is in the home prices.
Although a reduction in the discount given to mortgage holders has torpedoed sales, prices remain high, as if developers are certain that tightening is just a passing trend.
Beijing has cashed in big on the property bubble, and they aren’t ready to quit.
Contrary to Beijing’s policy intent, local governments are readying for another round of property inflation. Local governments have been using bank loans to resettle residents, and resettlement costs have skyrocketed since those being moved need enough compensation to buy properties at today’s prices. Unless property prices rise considerably, local governments will end up losing money, which they cannot afford.
Such resettlements played an important role in supporting demand for property last year. The overwhelming majority of end-user purchases probably came from resettled residents who used their compensation cash for down payments. Resettlement compensation is the biggest transfer of wealth from the government to the household sector since the privatization of low-cost public housing a decade ago. It is probably the most important government action supporting today’s economy.