This Real Estate Rebound Is Different, Lacks Fundamental Support

Zhang Ming of CASS discusses the current real estate market.
We found a very important phenomenon. In the previous two real estate market rebound process (2009, 2012), the volume of real estate are the first to pick up, and then drive to pick up real estate development, and finally prices rebound. So you can put the real estate market rebound in the first two rounds as the result of a spontaneous adjustment of the real estate market, which is the inventory drops, when the inventory dropped to a certain size, the volume started to rise. But the current round of real estate rebound is typically characterized by: first rebound in house prices, driven real estate volume pick up again after the last drive real estate investment rebound. Therefore, the current round of real estate market rebound showed prices rebound ahead of the other factors.

hy the first round of housing prices rebound? We found that, since the second half of last year prices rebound, long-term loans with the same period the interest rate downward significant contact, since late last year also with M1 rapid rebound in growth was significantly linked. Therefore, our judgment is that with the real estate market rebound in the past two different markets spontaneous cyclical adjustment, the current round of the real estate market rebound is largely government artificially accelerated to the inventory results, and this is an important means of accelerated inventory destocking. It is a monetary and credit relaxation.
In an economy driven by credit outbursts since 2008, this real estate rebound is the most artificial of all.

He sees two reasons why first-tier prices took off and left the rest of China in the dust. The first was fundamental reasons, such as in Shenzhen. The second reason was financial. He breaks the latter out into five parts:
First, line the city's housing prices soared round behind, with support for high leverage. Originally, if you buy a 30 percent down payment , then the leverage ratio is relatively low (2 times), but in the past year, including the chain of home with a number of P2P companies give sales people to provide product called "down payment loan", which the fact that people buy a house and pushed to leverage 9-10 times. This is the first half of 2015 driven by the stock market soared off with the capital is very similar;

Second, the current domestic excessive liquidity chasing too few safe assets. Due to the lack of safe assets, many institutional investors a lot of first-tier cities housing configuration, which will naturally push up prices;

The third is financial wealth wheeled. In 2015, the Chinese stock market experienced a spike. Since then, the stock market benefited from investors shifted funds out of the stock market, there are two main destination of these funds, a configuration is overseas dollar assets, the second configuration is the nearest real estate. Therefore, the current round of real estate rose the most fierce in Shenzhen and Shanghai, the city where all stock exchanges;

The fourth story is limited to Shenzhen. In 2015, a Hong Kong real estate market to unsustainable highs, many investors also worried about HK $ peg between the dollar and the ability to maintain, so many Hong Kong financial high shipping, selling real estate in Hong Kong, after funds to invest in the Mainland, and adjacent to Shenzhen to naturally become the focus of investment.

Fifth, false trading. As we all know, Chinese private entrepreneurs in the current difficult financing. Thus, in the first-tier cities when housing prices soaring, some entrepreneurs by making false transactions to drive up real estate prices, which can significantly increase the size of its financing from banks obtained.
Leveraged speculation, monetary emissions, the rolling ball of money, currency speculation and fraud.

Zhang goes on to day:
We therefore believe that, in the past year after rising, now line the city's real estate is no longer like a necessity, but more like investment goods. If more and more like nature of the real estate investment goods, then the future may be significantly increased price volatility. Future prices of first-tier cities will not fall, but volatility is expected to rise significantly. This means that to buy a house or by highly leveraged real estate investors, the future will be more dangerous.
China has been treating housing as an investment good for many years. Demand is high when prices are high or rising; demand collapses when prices are falling or low. This inverted demand curve is typical of all financial assets.

He concludes with a sober message:
Finally, our overall conclusion is that the best decade for real estate in China was the past decade, it will not come back in the future. China's real estate market in general is still a downward trend in the country to the inventory process will be painful and protracted. A second-tier cities housing market pick up, we can not change the overall situation of the national real estate market downturn. In the past year, house prices after a first-tier cities and some second-tier cities in a significant rise in short-term risk Chinese real estate market is intensifying, a significant downward adjustment may occur in the near future. Also a factor may have potential negative impact on the real estate market, the yuan devaluation is expected to deepen and exacerbate short-term capital outflows. It is important that we should be worried about the current risk.

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