CASS Warns of Housing Slowdown

SCMP: Top think tank CASS warns Chinese property sector heading for correction

The Chinese Academy of Social Sciences (CASS) is now predicting the rate of price growth in the second half of the year and first half of 2017 will moderate, or even fall back.

Ni Pengfei, CASS’ director of National Academy of Economic Strategy, said based on the trajectory of China’s property market over the past decade, a typical upward cycle runs for about 12 months.

Ni said in a new report on the market that the current upward cycle has lasted a year, and could be about to end.

The article contains this golden nugget of widsom:

Guo Kesha, director of the Economic Policy Centre within CASS, warned the government’s efforts to encourage developers to cut their prices to reduce mounting inventories, might actually act in the opposite direction as homebuyers tend to buy assets when prices are rallying, and stay on the sidelines when prices fall.

Any asset valued as an investment will behave this way: demand and price are positively correlated. Equities are the most obvious example. Chinese treat homes as investment due to the lack of suitable alternatives, which aside from government policy, is a large reason why the market seems to ping pong from overheating to collapse rather quickly.

As for Ni Pengfei, he made waves almost exactly 2 years ago: CASS Researcher: Real Estate Collapse in Second and Third Tier Cities Possible

Ni Pengfei, Director of the Urban and Real Estate Economy Research at the Chinese Academy of Social Sciences (CASS) and also the Director of Center for Cities and Competitiveness, says a collapse in some eastern second and third-tier cities is "entirely possible," though a national collapse is unlikely.

...Ni also said the lifting of buying restrictions would have little effect, though he said first-tier cities such as Beijing and Shanghai would not lift restrictions because a lot of speculative money would come into the markets there, wiping out years of efforts to limit price increases.

They didn't life restriction, but a credit binge was enough to spike the market.

Back to the SCMP article, another CASS researcher Zhang Ming said:

“Excessive liquidity is being used to chase after too few ‘safe assets’,” he said, adding the longer that trend continues, the more volatile those markets will remain.

“Those who are using high leverage should watch out,” he said.

The same could be said of most investors around the globe.