China's attempts to curb runaway inflation in its housing market - which in a country in which the relatively young capital markets lack the breadth and depth of their western equivalents remains the only venue in which to park any of the excess cash generated from the global central bank liquidity avalanche - continue to be met with failure after failure. Overnight, the China Statistics Bureau reported that in September new home price across the country's 70 tracked cities, rose in virtually all of them, or 69 compared to a year ago. On a monthly basis, or compared to August, new home prices rose in only 65 of China's cities, compared to 66 in the month prior. And while the CSB data differs from the Shanghai Uwin [9]data reported yesterday, the government's data while less stunning still shows the extent of the Chinese housing bubble and the persistent inflation plaguing the country: Beijing new home prices rose 1% M/m; and 16% Y/y; Shanghai new home prices rose 1.4% M/m; and 17% Y/y in September.
More from SocGen's Wei Yao:
China’s home prices continued to rise in most major cities in September, albeit at a somewhat slower pace. Out of the 70 cities monitored by the National Bureau of Statistics, 65 saw new home prices rise month on month, one fewer than in August but still close to record highs. On average, prices of new residential apartments increased 0.67% mom (8.4% annualised), slowing from 0.79% mom in the previous month; while prices of second-hand properties increased 0.42% mom in September, compared with 0.35% mom in August.
Moreover, housing inflation in first-tier cities – referring to Beijing, Shanghai, Guangzhou and Shenzhen – remained much stronger than in smaller cities, with the average gain of new flat prices in those cities nearly twice the pace of others.
The housing activity data released earlier indicated strengthening property construction. Growth of housing starts surged to +41.3% yoy in September from -20.1% yoy in August, partly thanks to a base effect. The quarterly growth rate of starts quickened to 14.9% yoy in Q3 from 8.8% yoy in Q2. However, sales volume growth decelerated to 21.2% yoy from 32.4% yoy and real estate investment also grew slower in Q3 at 18.9% yoy, compared with 20.4% yoy in Q2. In addition to much higher statistical bases, the downward trends in sales and investment – at least in yoy terms – point to weakening in housing start growth in the coming quarters. Hence, the under-supply situation in big cities is unlikely to change inthe near term.
In terms of policy, we see no grand tightening in the offing, except that banks are extending fewer mortgages. Long-term solutions, such as property taxes, land reform and sustainable funding sources for affordable housing, are still slow to come.
And to think how much ink was spilled over the summer when the PBOC announced that, in an attempt to be prudent and to cool the housing market, it would "taper" the market liquidity by CNY1 trillion [10]... nearly leading to the collapse of the banking system. Funny how just like at the Fed, that whole idea was quickly buried without anything as much as a peep.