China Takes SEVERE Step Towards Cooling Bubble, After Record Property Auction Humiliates Leaders

Here’s what looks like a fascinating development out of China in regards to the government’s efforts at cooling its real estate bubble.

From Waverly Advisors:

On Monday the all time record land price paid for residential housing in Beijing was broken. TWICE.   After a week of postponement caused by the National People’s Congress session the first new land auction drew pent up demand from buyers, including State Owned Enterprises (SOEs).

 The embarrassment of the auction results for the central government –who have been insisting that proper steps are being taken to reign in speculation by state controlled entities, appears to have resulted in swift action.   Xinhua News today reported that The State-Owned Assets Supervision and Administration Commission, a watchdog agency, was requiring that 78 SOEs cease buying properties and exit the real estate development business entirely when current projects are completed.  The report said that 16 SOEs whose primary business is the development of residential real estate may continue business as usual, presumably meaning that the other 78 that have been singles out are in other business lines entirely.

Reigning in SOE speculation is only one of the latest signs that Beijing is getting serious about curbing a bubble in real estate, but given the late timing of this action we can only reiterate our belief that the government has waited too long to act. It seems unlikely that deleveraging the system at this point can come without near-term  pain on the asset valuation side.


Photo: Waverly Advisors

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