Is This The End Of China's Second Housing Bubble?

Tyler Durden's picture

Authored by Valentin Schmid via The Epoch Times,

When the economy started to cool in the beginning of 2016, China opened up the debt spigots again to stimulate the economy. After the failed initiative with the stock market in 2015, Chinese central planners chose residential real estate again.

And it worked. As mortgages made up 40.5 percent of new bank loans in 2016, house prices were rising at more than 10 percent year over year for most of 2016 and the beginning of 2017. Overall, they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016.

Because housing uses a lot of human resources and raw material inputs, the economy also stabilized and has been doing rather well in 2017, according to both the official numbers and unofficial reports from organizations like the China Beige Book (CBB), which collects independent, on-the-ground data about the Chinese economy.

“China Beige Book’s new Q2 results show an economy that improved again, compared to both last quarter and a year ago, with retail and services each bouncing back from underwhelming Q1 performances,” states the most recent CBB report.

However, because Beijing’s central planners must walk a tightrope between stimulating the economy and exacerbating a financial bubble, they tightened housing regulations as well as lending in the beginning of 2017.

Has the Bubble Burst?

Research by TS Lombard now suggests the housing bubble may have burst for the second time after 2014.

“We expect the latest round of policy tightening in the property sector to drive down housing sales significantly over the next six months,” states the research firm, in its latest “China Watch” report.

One of the major reasons for the concern is increased regulation. Out of the 55 cities measured in the national property price index, 25 have increased regulation on housing purchases.

In Beijing, for example, some owners of residential real estate can no longer sell their apartments to private buyers—instead, they have to sell to businesses, because their apartment has been marked for business use by the authorities.

Other measures include higher down payments, price controls, and increasing the time until the unit can be sold again.

“First- and second-tier cities have enacted such draconian measures that it is nigh impossible to buy or sell a property,” states the report.

Credit Tightening

Although the central bank left its benchmark mortgage lending rate unchanged at 4.9 percent, banks have increased the rates they charge on mortgages to as high as 6 percent and, in some cases, have stopped giving out mortgages altogether because they have used up their quotas set by regulators.

The People’s Bank of China wants to lower the share of mortgage lending to 30 percent of new loans, which should influence new demand for housing.

“Unlike 10 years ago, when most Chinese households made a 50 to 70 percent down payment to buy a new apartment, more than 80 percent of borrowers in the past two years have put down 30 percent or less. With reduced mortgage funding availability, we believe it is unlikely that households will be able to finance their purchase through savings,” states the TS Lombard report.

So far, the slowdown in larger cities has been offset by more activity in smaller cities, which haven’t implemented as many tightening measures.

“Overall revenues and profits plunged in Tier 1 cities, with the slowdown concentrated primarily in the Beijing and Shanghai regions. Hiring stagnated, while cash ?ow worsened across the board,” the China Beige Book says.

However, TS Lombard expects smaller cities to follow the bigger cities with more restrictive measures for property buying, which will ultimately lead to a decline in housing transactions, if not prices outright.

“Property sales will decelerate notably in [the second half of 2017], with the monthly number of new residential housing transactions set to drop by 10 percent year-on-year, compared with a year-on-year rise of 8.3 percent in May.”

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garypaul's picture

I think these China stories belong on King World News:

ALL HELL BREAKING LOOSE!! (sometime soon)

LOL

ACP's picture

The Chinese debt machine will never stop. Only an outside influence, say the US going into recession and no longer buying as much Chinese landfill (products) will put a dent in their super mighty economy.

AltRightGirl's picture

Communists doing bad business deals with plebs' money.

What else is new?

We also have our commies pulling stunts like those, here in Vermont:

FBI Extends the Investigation into Jane Sanders’ College Land Deal

http://dailywesterner.com/news/2017-07-10/fbi-extends-the-investigation-...

nufio's picture

so they are putting 30% down. so around 160 times annual income since they are putting 30% down, that means everyone has saved 50 times their annual income?

roddy6667's picture

The article is total bullshit. Don't even try to respond to it.

Stinkytofu's picture

the statistics they made up are totally made up.

i canna speak for the tier one cities, but in the smaller places prices have been going

up like crazy, but not that freakin' crazy.

 

low-end stuff will run 5000 rmb/sqm which is like $80/square foot.

high-end will go to double that, 10000/sqm or $160/ft.

(of course that's for an empty concrete shell, still gotta decorate and furnish!)

apartments will be 60-120 square meters.

 

pick an mid-quality 80-meter place at 7000/m....that's 560K RMB,

30% down about 170K RMB.  that's doable, given their savings rate,

big loans/gifts from family, and the monthly housing allowance often

provided by employer.

Bunga Bunga's picture

They are still building like crazy. At the moment Singapore II on artificial islands just next to Singapore. https://www.youtube.com/watch?v=uyExrYgoBr8

https://www.citylab.com/equity/2016/12/is-china-building-a-ghost-city-ab...

Clock Crasher's picture

1.3 BILLION people?

I don't know, can you have a housing bubble with that many people. But they are poor you say. Maybe until these China gold/yuan games play out.

techpriest's picture

The issue is that most of those 1.3 billion cannot afford housing at the current prices. Now if prices fell by 90%, there would be plenty of demand.

Gen. Ripper's picture

Imperialist yankee stooges don't care

NoDebt's picture

China is the greatest lie of the 21st century.  Every stat is rigged, every book is cooked.  Lying is their way of life.  It's in their culture.  It's expected.  Counted upon.  It's ALL fake.  ALL lies.

(Yes, even worse than the US, in case you were wondering)

 

Arnold's picture

I wish they would dig up Emperor Qin's tomb,
show us the mercury lake, and be done with their commie crap.

NoDebt's picture

BAM!  My down-voter is right on top of my shit tonight!  I like to think it's Ghordius who always down-votes me.  Reality is, it's probably Paul Krugman or Barack Obama.

 

lasvegaspersona's picture

You've a personal downvoter? Now that is status!

roddy6667's picture

And what makes you an expert on China? How much time have you spent there?

Mike Powell's picture

Do you want some 100 bucks BLANK PAPERS? I can sell you some.

Arnold's picture

Laissez les bons temps rouler, as they say in Kowloon.

Dragon HAwk's picture

Be interesting to know if china properties are anywhere priced, linked to cost of materials and labor. or do they just 500% proffit margin everything

Maximeme Q's picture

"Is This The End Of China's Second Housing Bubble?"

 

No.

BitchesBetterRecognize's picture
Is This The End Of China's Second Housing bubble? maybe......... but there is the third one already in the making "on top of the crumbs of the 2nd bubble 
roddy6667's picture

I question these numbers. "they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016." Absolutely false. $9600 a year household income is lower middle class in China, meassured by Western standards. That would make the average new home about $1.5 million US. Total bullshit.

I see why the numbers are so far off. The article is from the Epoch Times, the mouthpiece of the vile Falun Gong religious cult. This is not reporting or journalism of any kind.

End of discussion.

Batman11's picture

Were the tulip bulbs in 1600s Holland a good investment?

As long as you weren’t one of the biggest fools who got left holding the bag at the end, yes.

The lure of easy money has made the capital gains of speculation a firm favourite for four hundred years. We all love to have a flutter through real estate and hope we won’t be that biggest fool that buys at the top.

When you add debt (bank credit) into the mix, this is when things get dangerous. Investors losing their money is one thing, collapsing economies and the global financial system another.

We are missing that critical distinction between “productive” investment and “unproductive” investment when it comes to bank credit.

Productive investment goes into business and industry; it generates the money to make the repayments and gives a good return in GDP.

Unproductive investment goes into real estate and financial speculation; it doesn’t generate the money to make the repayments and gives a poor return in GDP.

The UK used to know what it was doing until it went neo-liberal with Thatcher:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

The bank credit pours into real estate and financial speculation.

The US has never really had a clue:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

1929 and 2008 stick out like sore thumbs; bank credit going into financial speculation and stocks (1929) or real estate (2008). Leveraged financial speculation with bank credit.

To understand the problem we would need to understand money and debt, but we don’t.

“…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.

A 21st century Nobel prize winner has no idea, monetary theory was better in the 19th Century.

Monetary theory has been regressing since 1856 as progress isn’t always in the forwards direction.

“A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

Batman11's picture

People do like to have a flutter on real estate and our Central Bankers, who are supposed to provide financial stability, are not on the ball.

The early 1980s see the beginnings of financial liberalisation and the late 1980s sees the following crises, e.g. US S&L crisis; UK, Japan, Australia, Canada and Scandinavia real estate busts.

More financial deregulation leads to 2008; the Euro-zone crisis; Irish, Greek and Spanish real estate crashes.

2008 is just another real estate bust, leveraged up and transmitted internationally by complex financial instruments. As the global bust hits the Euro-zone, it crumbles.

Australia, Canada and Scandinavia are queuing up for their second real estate bust.

They still haven't got it.

Australian and Canadian Central banks are now talking of tightening because they have no idea what they are doing.

Mike Powell's picture

China don't have systemic issue like U.S. did.

Anyone who want to believe a collapse, you can go buy yourself some WEATHER DERIVATIVES. Although I can sell you some BLANK PAPERS at 100 bucks each.