Is China close to a property bubble bust?

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BEIJING - OCTOBER 30: A visitor yawns in front of the building models at the 2008 Beijing Autumn Real Estate Trade Fair on October 30, 2008 in Beijing, China. China has seen a worsening slump in the real estate market, which has resulted in four months of consecutive drops in housing prices in major cities. China announced a series of new measures to boost the domestic real estate market by exempting the stamp tax on property purchase and the value-added tax of land on property sales, which had shown signs of slowing amid the global financial turmoil. (Photo by Feng Li/Getty Images)

Earlier this week, mayors of five cities Haikou, Sanya, Yantai, Yichang, Yangzhou were summoned to Beijing for questioning by the Ministry of Housing and Urban-Rural Development, urged to curb their rising housing prices. Together with them, at least 16 provinces have received warnings to keep the rising real estate prices under control.

The following are recent developments covered by the world’s media.

China Real estate boom chokes consumption

Yang Xiaodao, a 26-year-old civil servant in the Chinese city of Xiamen, says taking out a 30-year-mortgage on a two-bedroom apartment with her husband was the most regrettable decision of her life.

Although their parents covered the 1.5 million yuan (£172,285) down payment on the 2.9 million yuan flat, mortgage payments eat up more than 70 percent of the couple’s combined income of about 10,000 yuan a month – average for the city.

“Our spending power has plummeted,” Yang said. “We do not dare to have a kid. We do not dare to buy a car. We do not dare to travel.”

Throughout China, home prices that are among the highest in the world relative to incomes have pushed millions of households to debt levels similar to those seen in the United States just before its housing crisis, according to a new study by the Institute for Advanced Research at the Shanghai University of Finance and Economics.

Stella Qiu and Elias Glenn/Reuters

China’s Property Market Most at Risk of a Cash Squeeze

A mad scramble by Chinese property developers to build up their land banks is taking its toll on the industry’s creditworthiness, with builders singled out as having the highest risk of default as channels of credit tighten.

The Bloomberg default risk model, which tracks metrics including share performance, liabilities and cash flow, shows a 0.87 per cent average probability that builders will renege on its obligations in the next 12 months. While the proportion may look small, it’s triple the likelihood of delinquency in the technology industry. About three-quarters of developers have had their default risk climb over the past year, Bloomberg data shows.

“The Chinese corporates which have financed themselves on a shorter-term basis are increasingly at risk of stumbling into potential defaults,” said Mr Lukaszewski, head of Asian corporate debt and emerging market credit research for the asset manager in Singapore.

Bloomberg News/With assistance by Lianting Tu, and Jing Zha

China’s Property market is starting to bubble and policymakers are unlikely to stop it

There’s no stopping China’s housing market at present, even with tighter restrictions on buying and selling being gradually rolled out by policymakers.

According to China’s National Bureau of Statistics (NBS), new home prices increased by 1% in June, the largest increase since October 2016.

Prices also increased in 63 of the 70 cities monitored by the NBS, up from 61 in May, coinciding with steep losses in Chinese stocks in the first six months of the year.

Business Insider /David Scutt

China scales back property subsidies, adding to growth concerns

Programme to help poor homebuyers has fuelled housing bubble, critics say. –Financial Times

Smaller Cities Are a Big Worry in China’s Too-Hot Property Market –Dominique Fong/wall street journal

Real estate investment accounts for about two-thirds of Chinese household assets, according to wealth manager Noah Holdings. The property market also plays a significant role in local government revenues, bank loans and corporate investment. As a result, a sharp slowdown in the real estate market’s growth and drop in prices would have a negative affect on overall economic growth.

Real estate prices are surging throughout China despite controls put in place to ward off a property bubble. Smaller cities taking advantage of loopholes are leading the upswing.-CNBC

China’s latest policy for deflating the property bubble merely buys time, instead of offering relief

In fact, by accelerating real-estate lending while encouraging banks and developers to subsidise renters, the government is making things worse by delaying a restructuring. Developers will worsen their debt load. Consumers will be burdened with longer rent-repayment terms. And new homes will remain as unaffordable as ever, even as added inventory comes on the market.

At best, this latest plan will buy time. But this raises the all-important question: For what?

Christopher Balding/South China Morning Post

Property bubble is one of the greatest risks China’s government is facing. Once the bubble breaks, it will have devastating effects on the Chinese economy and society. And that will threaten the legitimacy of governance under CCP.

Staff Editor

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