New life in China’s property bubble

Courtesy of Also Sprach Analyst.

Yesterday I noted how the change in government policies in China’s realty market belied its rhetoric of rebalancing.

Even though the Chinese government has been telling everyone for some time that that they are serious in trying to curb home prices, it is now becoming clear that they are now giving up on real estate market curbs already. In fact, not only has the government been fine-tuning real estate policies at the local governments level, it has now cut lending rates, as we have all known. Between attempting to maintain high growth and letting the economy to adjust, the government speaks the latter and does the former.

As a result of all these subtle changes in language and actual policies, it seems that the real estate market is heating up again in various cities.  Suddenly we are seeing queues in property sales offices again, in Beijing, in Shenzhen and in other places, as people believe that as the tightening is over.  Real estate prices will rise again according to Sina.

Deutsche Bank’s China property research has become very excited, claiming that the real estate sector now has the “best industry fundamentals in three years”, so it is now time to BUY, BUY, BUY property stocks:

In the past three years, government tightening, weakening housing affordability, slowing sales, rising inventory, and tight financing for developers have been five key investor concerns on China property. However, since March 2012, four of these concerns have cleared as the fundamentals of the China property market continue to improve: 1) government policy direction shifted to “loosening”; 2) sales volume continues to recover after price cuts; 3) inventory situations have improved; and 4) housing affordability has strengthened. This should help drive more meaningful valuations re-rating for property stocks.

Of course, whether loosening policy will ultimately be successful in reflating the economy is another question. The Deutsche Bank report has absolutely no mention of Eurozone crisis or broader context.

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  1. These people are dangerously stupid and they should receive no help at all when things finally crash sometime in the future. But we all know that after already suffering through the crises that such people cause, it is the prudent who end up having to pay for the bailouts, stimuli and printing. Of course, weak governments are most to blame. We were all kidding ourselves believing for one second that China would actually allow house prices to fall and accept the associated consequences.

    • Cheer up! I’m sure the powers-that-be said, “They wouldn’t allow house prices to fall!” in The States; the UK; Ireland; Portugal, Spain, Greece etc….either. But did it stop it happening, is the real question?

      • Thanks. I know that EVENTUALLY they can’t stop it. But in trying to, they build up the problem and cause more pain. Then it is the prudent who suffer most, the fools next, while the leaders don’t suffer at all through a combination of immunity and denial.

        I’m also annoyed because of the boring nature of this whole charade. It seems that this crisis can go on forever as everybody sells out their people for a few hours (its not months / days anymore) of market rallies. Yes I see the contradiction there…

        • The AU Gov did the same with the doubling/tripling of the FHB Grant in 2008. The US government did the same with the $7000 HB tax rebate thing-y in 2007/8-ish. Both halted the slide for a number of months, but only ended up waisting government cash by creating a dead cat bounce. China has done the same by allowing for the gaps in funding %ages talked about here this and last week. I’m sure Ireland and the UK played similar games as well.

          This is why these things go on far longer than outsiders with knowledge of the situation can fathom; You have 1,000s of highly intelligent (well, highly *creative* at least) policy wonks working feverishness to keep the game going.

          This is the nature of things. This will likely result in some measure of dead cat bounce in Chinese RE, but as we’ve seen in Europe, $100 billion Dollars/Euro/etc. used to buy us months/years (AU and US FHBGs). Now it buys us mere hours.

      • The fundamentals and drivers of China’s property market (and economy in general) seem to be very different to non-China property (i.e. UK, USA, Ireland, Spain, Australia …) … hopelessly different (I use ‘hopelessly’ in the sense of, “how does an open market, [relatively] rational, ethical economy survive, let alone thrive, when it must compete against this?”).

        The Chinese Kleptocracy Is Like Nothing In Human History

        OMG! Check Out The Crazy Palace Built By A Chinese State-Owned Enterprise

    • Egh, you have to be careful about their motivations… IMHO.

      When given limited investment options, money will pour into what the people view as the safest investment on offer with something approaching a return. The true failing here is the policy, as it not only encourages this mal-investment, it almost leaves no other choice! I mean, what would you do with a pile of your own non-convertible Renminbi (other than stack copper in your parking lots, of course ;)?

      Really, is it all too different from the Negative Gearing shenanigans we have here in the land of Oz? Same curtain, different wizard…

  2. Aristophrenia

    This is going to end well.

    China has just thrown its hands in the air – rate of officials leaving China also, coincidently, just doubled.

    Pitch forks and Torches just spiked.

    • I think you have touched on the REAL story here; The Chinese are paying lip-service to halting the property bubble, while in reality “throwing their hands in the air”. So, they both know it’s a major problem and know they can do nothing about it. So, let’s take our foot off the break and hit that wall that we can’t avoid anyway… So the only question of importance that remains; where is that wall?

      As you said; this is going to end well…

  3. Charles Ponzi

    The bigger the bubble, the bigger the pop. Little bubbles lead to recession while big bubbles lead to depression. Governments around the world have chosen to avoid recession even if the cost is future depression. The Global Debt Crisis did not happen by accident.