Photo: China Photos/Getty Images
New home prices fell month-over-month in 45 of 70 Chinese cities surveyed by the government. Home prices where unchanged in 21 cities while four others saw gains in new home prices.So does this mean China may try to reignite the housing market?
Don’t bet on it.
The news comes days after Chinese premiere Wen Jiabao said home prices were far from a reasonable level. Jiabao said easing curbs on the property market now would only create chaos.
China has been trying to deflate its property bubble for a while. It first started ramping up efforts to curb speculation in the property market and keep prices in check back in April 2010. So far, Beijing has passed measures requiring bigger down payments on homes, restricting purchases of additional homes, boosting social housing, and curbing lending.
But many link declining home prices and China’s property bubble with a soft landing scenario. Which brings up the question ‘Is China likely to ease housing sector policies?’
SocGen analyst Wei Yao says Beijing can’t ignore the data forever because local governments are already feeling the impact of revenue declines from land sales, which is hurting cash flow needed for debt servicing and other infrastructure projects.
Some anemic efforts by local governments to ease home purchase restrictions (HPR) have failed and Beijing has warned against such petty easing actions. Yao suspects that the degree of easing will be more cautious. “Such a strong signal reveals Beijing’s deep concern for a potential malicious come-back of property bubbles if it blinks too soon”.
Easing is expected by way of a window for first-time buyers and relaxed rules on Hukou – China’s residency permits. From Yao:
“The initial intention of Beijing’s harsher-than-ever property tightening is to prevent dangerous asset bubbles from destabilizing the whole economy. We also think that China’s property bubble is not a gigantic one to begin with. The underlying structural demand for property, supported by continued urbanization, resilient income growth, and a high saving rate, is still alive.
The near-term problem remains low affordability and a sizable mismatch in the type of supply and demand – a glut (or a bubble) in high-end property accompanied by a deficit in affordable housing.
While some cities, including higher-tier ones on the coast and in resource- rich provinces, are suffering dearly in the current downturn, lower-tier cities will emerge largely unscathed if the central government adjusts its policy in a timely manner.”
Now here’s a chart from Societe Generale that shows the co-relation between China’s property market and the policies of its central government:
Photo: Societe Generale
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