Supply Side Push Signals Real Estate Market Already Turning

Bloomberg: The Big Risk in China Isn't Stocks
Third, there's the more immediate threat to real estate prices of a supply-side push by Beijing.

The government is starting to shift from tamping down demand to promoting new housing. Among measures the government is promoting, according to BNP Paribas SA economist Chen Xingdong, is encouraging homes where the government and buyers share property rights, and even allowing state-owned firms to sell apartments to their employees.

The government is also encouraging the growth of a rental market. While much of the current stock of rental housing is of poor quality, that's likely to change.
According to at least one person involved in real estate financing, it's already "like 1997" thanks to deleveraging efforts. Barring an extreme policy response, credit is the horse pulling the cart.

The Chinese government's housing supply strategy can help us understand where we are in the cycle. Socionomics posits that governments act too late. Legislation such as Sarbanes-Oxley and Dodd-Frank comes well after the crisis has passed. New rules address the prior market excess and aren't needed once the excess is wiped out by depression, recession and financial crises. By the time the next cycle is peaking, legislators remove old regulations. there's bipartisan support for easing Dodd-Frank rules in the USA, a sign the economic/stock market cycle is peaking there.

China acts more quickly because it has an authoritarian system, but even though there's no risk of being tossed out by voters, officials don't snuff out a bull market in its infancy. Rule changes such as buying restrictions cause temporary blips in credit-driven moves in home prices. Regulations tighten all the way up and branch out into other sectors, such as banking, as regulators chase the source of rising prices: credit growth. When the government announces a policy that looks like the bull slayer, the cyclical peak has already passed. The supply side housing effort is China throwing the kitchen sink at a problem that's already on its way to resolving through a slowdown in credit growth. The buying restrictions that some cities said would last for 5 years could be gone later this year or next if history is any guide.

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