Chinese Home Prices "Unexpectedly" Rebound; Government Loses Interest In "Curbs"

Tyler Durden's picture

On Friday, we summarized research reports from Deutsche Bank and Bank of America, which came to the same conclusion: the fate of the global economic rebound may be in the hands of the Chinese housing bubble, which through price appreciation has unleashed wealth effect equivalent to twice the annual disposable income of China.

 

We concluded by saying that those who are looking for key inflection points to determine the future trajectory of the global economy, in addition to the global (read Chinese) credit impulse, we suggest keeping a close eye on what happens with Chinese housing, which has become a - if not the - top variable for the fate of the both the great inflation-deflation debate, as well as the overall fate of the world economy

The key variable is "how Beijing manages to deflate the existing bubble: if it fails to be aggressive enough, home prices will once again spike, leading to an even more precarious bubble. If it is too aggressive, a hard landing is in store, coupled with what a crash in the country's financial system, where the bulk of the banks' $35 trillion in assets is collateralized by housing values. While such a crash may not necessarily lead to a catastrophe for China, where the government ultimately backstops all the banks, the deflationary wave spread around the globe from a housing crash would be dire."

One answer was revealed just hours later, when on Saturday China's NBS revealed that following two months of broad but shallow declines, in February there was an unexpected rebound in Chinese home prices, which last month rose in more cities despite increased "restrictions" on property transactions by local authorities. As Bloomberg reported, new home prices, excluding subsidized housing, gained in February in 56 out of 70 cities tracked by the government, compared with 45 in January, the National Bureau of Statistics said Saturday. Furthermore, prices climbed in 67 out of 70 cities from a year earlier, compared with 66 in January. 

As Goldman calculates, prices in the primary market increased 0.4% month-over-month after seasonal adjustment (weighted by population) in February, the same as the growth rate in January.

And while on a year-over-year, population-weighted basis, housing prices in the 70 cities were up 12.0%, slightly lower than 12.4% yoy in January, the nuance was once again among the various city ties. On month-over-month basis, house price growth diverged among different city tiers. Home price inflation decelerated in tier-1 cities, but home price inflation in tier 2/3/4 cities was steady or accelerated, which goes back to the core issue discussed last Friday: for all the talk about moderating home prices, China is first and foremost focused on preserving the wealth effect, which a sharp drop in home prices would crush.

February average price growth was 0.2% month-over-month after seasonal adjustment in tier-1 cities, vs. 0.3% in January. Average property price inflation in tier 2/3/4 cities was 0.6%/0.4%/0.5% month-over-month sa in February, vs 0.5%/0.4%/0.3% in January.  Indeed, as Bloomberg Intellgience wrote earlier in March, braking measures to counteract soaring home prices in eastern China’s largest cities appear to be diverting demand to smaller ones. Saturday's data confirms this.

* * *

The unexpected pick up in prices takes place as various Tier 1 cities are taking further measures to cool the market: among them, Beijing on Friday raised down-payment requirements for second homes 10 percentage points to between 60 percent and 80 percent. The rule also applied to buyers who don’t currently own a home but previously had a mortgage with the same down-payment threshold, making it harder for someone to sell their house to upgrade to a bigger or more expensive property.

Other cities taking additional measures were the southern export hub of Guangzhou, coastal Qingdao and Nanjing in the southeast have also tightened measures. Changsha, the capital of inland Hunan province, joined the ranks on Saturday after the home price data release.

“The government intends to pause the surging home prices, and let them walk steadily up later,” said Xia Dan, a Shanghai-based analyst at Bank of Communications Co., adding that if curbs on demand are lifted, prices will rise further. “The government doesn’t want the prices to run all the time and ferment bubbles.”

As Bloomberg notes, China’s biggest cities have seen a round of home price surges in the past year. In Beijing, new home prices rose 24 percent in February from a year earlier, while Shanghai saw a 25 percent gain. Shenzhen prices increased 14 percent in the same period.

“Beijing’s tightening will have a short-term effect to stabilize the market, but the power of policy has become increasingly weaker,” Zhang Hongwei, a research director at Shanghai-based Tospur Real Estate Consulting Co., said Friday, adding more local tightening may follow.

Or maybe not, because one may ask: is the rebound really unexpected. Perhaps not: as the WSJ reported on Sunday, "this year it seemed China was finally going to make headway on an idea familiar to U.S. homeowners: a property tax.

For many Chinese families, owning a home is one of few options to build wealth, driving buying frenzies as people rush to purchase before prices soar. Imposing costs on homeowners through a property tax is seen as a way to tame such speculation, while also helping fund local governments.

 

Lu Kehua, China’s vice housing minister, last month said the government needed to “speed up” a property-tax law. Economists and academics have long recommended the move.

 

Yet the annual National People’s Congress came and went this month with no discussion of the topic. An NPC spokeswoman said a property tax wouldn’t be on the legislative agenda for the rest of the year.

In short, China evaluted the risk of a potential housing bubble burst, and deciding that - at least for the time being - it is not worth the threat of losing a third of Chinese GDP in "wealth effect", got cold feet. Expect the recent dip in home prices to promptly stabilize, with gains in the short-term more likely that not.

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Yen Cross's picture

lol ! ! ! That's like saying the [Swiss National Bank] doesn't sell Francs.

 Well,,, technically they don't. The SNB just washes euros for dollars and pounds every day, until their equity holdings CRASH!

coast1's picture

I am so sorry guys and gals...but all the news I read on ZH doesnt mean a shit to me, I am prepared...And I know stuff...Please forgive me for a rant.  And please do not debate me on this subject, the evidence is overwhelming....But yes, I am talking about chemtrails again..I hate them....Friggin finally get a sunny day in NW, and they sprayed the crud out of the sky...I am so sick of this...I will say this one last time, or maybe I will say it again later, lol but stop the fucking chemtrails...please. please please. I hate them so bad...and yes, I know the friggin difference from contrails and chemtrails, I have made my own videos...we have to stop this spraying shit...seriously you all, it sucks and its the major thing that is going on..anyway, forgive me the rant but what I saw in the skies today just psses me off to no end.

Takeaction2's picture
Takeaction2 (not verified) coast1 Mar 19, 2017 11:45 PM

Portland here...gorgeous day for once.  

Bunga Bunga's picture

Central planning - what can go wrong?

gmj's picture

What happened to Jim Chanos's big short on Chinese real estate?  Did he ever make money on that?  

Stinkytofu's picture

it's crazy!  currently living in a tier idunno small chinese town (urban pop ~300K)

on a southern island.

nothing special about this town really, but housing is nuts.

have friends looking for an apartment.  many, many new towers going up,

eating up the rice fields and pineapple plantations.

couple months ago..............6000 RMB per square meter.

last month 8000, this month 10000. 

and that's IF you can find one for sale. 

much of the sales are of unfinished (some even unstarted) buildings,

purchased by northerners sight-unseen.

 

 

roddy6667's picture

10000 a sq meter is cheap. Almost any blue collar family can afford that.

Stinkytofu's picture

any blue what?....

10000 rmb per meter square works out (if my maffs is correct)
to about $150 per square foot.

so a tiny 1000 square foot house would be $150,000.

but note these apartments are sold as empty concrete shells.
just bare concrete floors and walls and ceilings.
not even electrical or plumbing. bigly expensive.

blue collar? you mean factory workers?
like those foxconn serfs making less than 5000 rmb
per month.....thats $750 before deductions and
expenses....

roddy6667's picture

You are obviously trying to understand Chinese real estate from the other side of the planet. I am a retired American who owns a home in a high rise here. Yes, homes are sold as shells. You need another 20% to finish it. That is just how it's done here. The builder does not do the upgrades, you do it all yourself. There is a huge industry in place that does this work. Americans do not have the cash to do things this way, so it needs to be finished by the builder and wrapped into the mortgage.
82% of homes in China are owned outright, no mortgage. There is no property tax. Most homes are purchased cash. Monthly income is not a factor in a cash purchase. That is a measure of cash flow. Here, savings is what matters. Most families buy their son a home when he marries around age 30. The family has had 30 years to save up for this purchase. The average savings rate is 36% of income in China. It is negative in America. The young couple lives at home until they marry. They have 8-12 years after high school or college to save money, and can contribute to the purchase. Also, the grandparents most likely live at home and can kick in some cash. Ordinary blue collar families by the millions purchase homes cash for $200,000 USD every day in China. It's no big deal. Americans can't begin to fathom this. There are also a lot of programs for low income people to buy homes at about half-price. They can pay a tiny rent for 15 years and then get the deed.
You are trying to understand Chinese real estate by looking at it as if it operated the same as American real estate.
China is not America and America is not China.The FoxConn (Taiwanese company) workers are not typical in any way of Chinese labor practices. It is a private hell made by Steve Jobs and other American billionaires to get richer.
If one of these young women got married, she would most likely end up living in a home purchased for cash by her husband's parents.

Houses Depreciate's picture

^ Huckster.

 

“If something sounds like BS, looks like BS, and smells like BS, there’s a good chance you’re probably eyeball-deep in BS."

U4 eee aaa's picture

Didn't take them long to go back to the printing bottle did it. Those shakes are coming fast and furious these days

Hongcha's picture

But when will Mrs. Chan buy gold?  How far can they blow this bubble?  When it pops and if they are herded correctly, China's mouthbreathers will inhale every piece of bullion not nailed down on the planet in a month.  It will be glorious, lads.

Yen Cross's picture

  Chinese home prices are NOT rebounding. Capital outflow restrictions are artificially propping up[Chinese sand castle] prices.

orangegeek's picture

Shanghai index was at 5200 in June 2016.

 

Today it is a 3200 in a bear flag.  About a 40% drop in less than a year.

 

The yuan is still around USD0.14.  As debt/gdp goes beyond 350%, the yuan will devalue and hyperinflation should ramp in China (like venezuela).

 

Housing ramp in China??? Sure, why not.  Macros out of China are often lies.