SocGen’s Wei Yao is out with an interesting note about Chinese housing.
Despite various warnings over the years, the market remains red hot.
SocGenThis is a major concern to the government, which is worried about an eventual collapse, but also the social implications of housing getting so expensive so fast.
The strength of the Chinese housing market comes despite the occasional slew of regulations aimed at cooling the market. So far no dice.
Per the note, China has two “nuclear weapons” left for this fight..
On the surface, policymakers seem to be running out of tools to cap property prices. However, we think they are well aware that there are still two nuclear weapons left. It is a matter to what extent they should use them. On the supply side, the policy that could materially increase supply and put downward pressure on home prices in the short term is a tax on property ownership – the kind that Shanghai and Chongqing has started in a trial. Although the number of vacant apartments in China is still debatable, with estimates ranging from 3.8m to 200m, it is well known that a group of people own an unreasonable number of properties. Since the initiation of the anti-corruption campaign in late 2012, numerous cases have been reported in which some civil servants have more than 10 (often high-end) properties in their name.
The other solution: credit tightening.
On the demand side, the ultimate tool is credit tightening. China’s experience since 2009 shows that its housing inflation is particularly sensitive to monetary easing. The suffering of Wenzhou city and the infamous ghost town of Ordos are cases in point. Home prices rose sharply due to rampant underground banking, followed by a painful and prolonged price correction when credit dried up.
The problem is there, it’s hard to just focus on housing without slowing growth generally.
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