PBOC’s Un-Tightening Sparks Renewed Bubble In Chinese Property Prices

PBOC’s Un-Tightening Sparks Renewed Bubble In Chinese Property Prices

Residential real estate prices surged in China in August – up 18-19% in first-tier cities – as it appears the slowing of several tightening measures earlier in the year has sparked a full-fledged recovery in the bubble-growing in the Chinese property market.

[Prices have once again surged after a temporary haitus]

As The FT reports, some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

The fact that the government juxtaposed the soaring prices in the big cities with relative stability in smaller cities merely stoked the fires of hot-money inflows as one analyst noted, “continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies.” Restrictions on purchases remain but it seems clear that no new tightening has given developers and investors the green light to blow the bubble even bigger.

Via The FT,

Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the red-hot market.

Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year, accelerating from previous months.

The sharp increase in prices in the biggest cities is the latest evidence of a full-fledged recovery in the Chinese property market after it was smothered by several tightening measures earlier this year.

Some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

The “continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies,” he said in a note to clients.

Over the past four years the Chinese government has waged a continuous battle to rein in the housing market, raising mandatory mortgage downpayments, placing restrictions on the number of homes people can buy and levying a tougher capital gains tax on sales.

But since the country’s new leaders – Xi Jinping and Li Keqiang – took office in March, there have been no big new tightening policies enacted on top of the measures already in place. Analysts believe this has given developers and investors the confidence to flood back into the property market.

So clearly, China is back to its old tricks. Having tried (and not liked the results – as we noted here) to ‘taper’ in June – sending SHIBOR to 25% and almost crashing the entire banking system in the process – the new regime has reverted to the old regime of credit pumping (as seen in the chart below’s uptick at far right to around CNY18tn total debt once again)…

This simply means the credit bubble will get worse and more and more unsustainable.

So, in summary, as the Fed is about to learn we suspect; once you have made the market entirely dependent on the flow of credit and threaten to taper/deleverage, the cracks appear very fast.

Perhaps this is why the PBOC has taken its eye off the domestic real estate bubble for now as the growth in 2-way trade volumes collapses…

(Charts: Sean Corrigan)

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