Submitted by Investing in Chinese Stocks
China was in the midst of a historic real estate tightening cycle that quickly intensified after May. The Politburo made real estate controls a focus, local officials were warned they will be held accountable for rising prices and cities stepped up their regulations. While the land market showed signs of cooling in August, new home prices have yet to react. Instead, price increases have accelerated over the past few months. June, July and now August have seen prices rise 1.1, 1.2 and 1.5 percent nationally, accelerating to a two-year high.
The worst case scenario is China has lost control of the real estate market. As limited as the stimulus has been, it is flowing into a very restricted housing market. Some analysts have argued that demand has been suppressed for so long that it is finally coming back despite intensifying restrictions.
Restrictions are also a bullish signal for speculators because every round of real estate tightening leads to an overshoot. Speculators started dominating the real estate market in late 2017. If the median home sales is still going to speculators, prices will keep rising as speculators chase an ever dwindling supply. Homebuyers may also be chasing prices if they fear even higher prices.
More likely, this is the final gasp of the boom. China didn’t start tightening credit in earnest until after October 2017. First-tier cities aren’t seeing a rebound in prices. Lower-tier cities were considered the greater risk in recent years.
The government funded renovation projects were designed to slash inventory with bulldozers. The government destroyed too much housing inventory, lower-tier cities did not restrict prices as early as first-tier because of the inventory fear. Lower-tier cities are experiencing the peak of the boom now because government policies gave it one final push before the turn. Price follows volume and sales growth is slowing though, thus eventually the lower-tier cities should cool.
For now, the government is stepping up real estate controls. Even in cities such as Beijing, where new and existing home prices were flat in August.
21st Century: 史上最严公积金贷款新政背后：楼市酝酿深度调整
On the evening of September 13, the Beijing Housing Provident Fund Management Center issued the “Notice on Adjusting the Housing Provident Fund Personal Housing Loan Policy” (hereinafter referred to as the “Notice”). Compared with previous policies, in addition to simplifying the procedures, several adjustments to the Notice will have a major impact on market trends: First, since September 17, online purchases will be executed when using the provident fund loans. Second, in the future, the provident fund loan will be linked to the payment period. Each deposit can be borrowed for 100,000 yuan a year, and the deposit for 12 years can be loaned to the highest of 1.2 million yuan. Third, The provident fund loan is also adjusted for the down payment ratio. The first set of ordinary self-occupied first payment ratios other than policy-oriented housing is not less than 35%, and the down payment ratio of the first non-ordinary self-occupied housing is not less than 40%. For the purchase of ordinary self-occupied housing and the second set of housing, the down payment ratio is not less than 60%; for the purchase of non-ordinary self-occupied housing and the second set of housing, the down payment ratio is not less than 80%. After the adjustment, the down payment ratio of the provident fund loans and commercial loans is basically the same.
21st Century: 8月楼市“高温”背后： 库存降至4年新低 房企追求现金流
Since the beginning of this year, the real estate market has maintained the momentum of both supply and demand. Some institutional analysts believe that this is because the supply and demand fundamentals of many cities have changed. On the one hand, after three years of “de-stocking”, the overall inventory size of the country has dropped significantly, and the inventory of some cities is significantly lower than normal; on the other hand, the demand that has been suppressed by the regulatory policies for a long time is seeking to be released.
Does this fundamental mean that the market still has the momentum to rise, and it still needs to be observed. However, from the changes in some details, the impact of regulatory policies has begun to appear: strong investment, improved work, and a decline in monthly sales.
Sales growth is losing momentum:
According to the National Bureau of Statistics, from January to August this year, the sales area of commercial housing in the country was 102.474 million square meters, up 4.0% year-on-year; the sales of commercial housing was 8.9396 billion yuan, up 14.5%. Since May this year, the sales amount has maintained a double-digit growth.
From the perspective of regional distribution, the central and western regions are still the key areas for sales. Zhongyuan Real Estate believes that this is due to the “peak period of the third- and fourth-tier cities, such as shed reforms, which still exist”.
However, from the data of the single month in August, the situation does not seem so optimistic. In August, the sales growth of commercial housing in the country was 2.4% year-on-year, and the chain was narrowed by 7.5 percentage points, indicating that the transaction heat in August was lower than that in July.
Average new home prices in China’s 70 major cities rose 1.4 percent in August from a month earlier, higher than July’s reading of 1.1 percent, Reuters calculated from an official survey published on Saturday.
That marks the fastest gain since September 2016, and the 40th straight month of price increases, Reuters calculations show, despite tougher curbs designed to rein in a near-three-year real estate boom that has spilled over from megacities to the hinterland.
In a sign of broadening market strength, 67 out of the 70 cities surveyed by the National Bureau of Statistics (NBS) reported a monthly price increase for new homes, up from 65 in July. Only one city – Xiamen in the south – had an actual price decline.
Compared with a year ago, new home prices climbed 7 percent, speeding up from July’s 5.8 percent rise, the NBS data showed.
“Property price gains this year are due to looser credit and the delayed effect of strong government stimulus introduced in previous months to reduce inventories, which will slowly kick in,” said Nie Wen, an analyst at Hwabao Trust.
…While many property analysts believe authorities will be more cautious about stimulating property investment than in past downturns, some suspect additional funds will inevitably flow into the market as investors look for opportunities.
New-home prices gained 1.49 per cent from the previous month, according to Bloomberg calculations based on data for 70 cities released by the National Bureau of Statistics on Saturday. That compared with a 1.2 per cent increase in July. It was the sixth straight monthly acceleration.
Of the 70 cities, the biggest month-on-month price increase in August was a 3.4 per cent gain in Wuxi, the data showed. In Beijing, where more tightening was announced on Thursday, prices were unchanged; in Shanghai, they were up 0.1 per cent.
The government is likely to maintain property curbs, based on fears that any relaxation will lead to another round of price surges, Haibin Zhu, the chief China economist at JPMorgan Chase, said ahead of the data. Officials are seeking to keep housing affordable and limit the risk of destabilising bubbles.