Goldman has issued a warning for Chinese property prices after the Chinese government on April 14th issued further four new restrictions on both first and second-home property buyers.
Escalated mortgage tightening is probably the most eye-catching measure: Down payments for first-time homebuyers with flats larger than GFA90sqm must be at least 30%; for second home buyers, down payments must be a minimum of 50% and mortgage rate should be 110% over PBOC bench mark lending rate; and for third home purchases or above, the banks should substantially increase the down payment requirement and mortgage rate further. In addition, local governments should accelerate the study of tax measures related to individual housing transactions that could rationalize individual housing purchases, and then stipulate these measures. Other measures include: to increase effective supply, accelerate land development, achieve 2010 social house development plan and strengthen market supervision, which are largely a repeat of the previous announcement.
More tightening policy to come; overhang is not over yet We believe escalated mortgage tightening was largely expected by the market, as the Chairman of CBRC already alerted the banks, according to sohu.com on April 12. But we think there could be more measures to come. Our read on the latest announcement is that either the “property consumption tax” or a heavier secondary transaction tax could be the next tightening step taken by some local governments.
We would add to positions if share prices approach bear case We think government tightening will exert near-term pressure on both transaction volume and prices. That said, we think such downside risk in the physical market is already largely priced in valuations.
Thus they believe property prices could come under pressure, but that share prices for many Chinese property stocks already reflect lower property price expectations.
They say that their property coverage is currently trading at over a 30% discount to expected net asset values, and that their expected asset values already incorporation an expectation for a 10% property price drop.
(Via Goldman, China:Real Estate, Yi Wang, 16 April 2010)
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