Fake News: Rumor Mill Says China Will Lift Buying Restrictions

The real estate market's topping process is underway and already there are rumors that buying restrictions will be lifted. Only months ago the government and analysts alike were saying restrictions were here to stay for years and would probably even intensify in lower-tier cities in the second-half of 2018. The rumor may have contributed to a rally in property sector A-shares last week.

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Recently, a rumor about the “cancellation of the purchase restriction” was rapidly fermented in the industry. According to rumors, according to the "Notice on the Regulations on the Protection of Property Rights and the Cleanup of Regulatory Documents" issued by the State Council in May this year (the "No. 29 Document"), by the end of October this year, the State Council and local governments have Relevant documents on the protection of property rights will be cleaned up, including the “restriction order” issued by various places.

The rumor was quickly proved to be a rumor because of insufficient arguments and logical loopholes.

However, the impact of the news on the market can not be ignored, in addition to being widely spread, in recent days, the real estate sector of A shares and Hong Kong stocks have seen a big rise.

Analysts pointed out that this reflects a tension in the real estate market. Since the beginning of 2016, the nationwide property market regulation has continued for more than 30 months. Affected by this, housing companies frequently adopt price promotion strategies to maintain cash flow. The price of the second-hand housing market is equally fierce.

Some real estate developers bluntly said that under the pressure of policies and markets, "the nerves between the supply and demand sides are highly tight." Any change in policy may break the balance. This is also the reason why rumors can be fermented quickly.

Zhang Dawei explains why the rumor is "fake news."

Regarding whether or not it includes a “restriction order”, Zhang Dawei, chief analyst of Zhongyuan Real Estate, pointed out that the document is not about the real estate sector, but the notice of the General Office of the State Council on the clean-up of regulations and normative documents involving property rights protection. Therefore, it has nothing to do with the “restriction order”.

He also stated that the basis of "No. 29 Document" is the "Opinions on Perfecting Property Rights Protection System and Protecting Property Rights According to Law" promulgated by the State Council in November 2016. This opinion is an important document in the protection of property rights, but it is also irrelevant to the “restriction order” in the real estate sector.

Zhang Dawei said that the news of canceling the "restriction order" is "fake news."

Analysts believe the rumor boosted Mainland property shares:

Although falsified, the aftermath of the news did not subside. In addition to the massive spread of news, on October 26, in the case of the market continued to fall, the A-share real estate sector rose 2.17 percentage points against the trend, becoming the leading sector. Among them, six stocks, including Wolong Real Estate, Huaye Capital and COFCO Real Estate, have daily limit.

Chinese property stocks in Hong Kong stocks rose sharply on October 25, but by October 26 they have returned to calm.

Market participants generally believe that in this round of real estate stocks, the rumors of “cancellation of purchase restrictions” played a key role. Of course, the impact of "first-home loan interest rate reduction" and "speeding up mortgage loans" can not be ignored.

There have been a few signs of loosening policies, but these are small outlier moves thus far.

According to the 21st Century Business Herald, some cities have recently seen the phenomenon of “relaxation” in price control. For example, Beijing recently issued a pre-sale permit for a number of luxury home projects with a unit price of more than 100,000. Xiamen has also relaxed the conditions for the establishment of college graduates, skilled workers, and returned overseas students.

However, most respondents believe that this does not mean that the property market regulation will be substantially loose. On the contrary, Zhang Dawei believes that the content of the regulation and control policies for the upgrading of the property market will continue to emerge, thus consolidating the effect of the regulation of the property market and avoiding the diminishing marginal effects of policies.

Beijing also sold a plot of land without attaching affordable housing requirements.

China is unlikely to loosen real estate policy because it would unleash a flood of capital back into housing. Officials want investment flowing to SMEs and other sectors of the economy, not another housing bubble. Even a small loosening will create a huge shift in expectations and hamper those efforts.

Finally, a corollary to Chinese housing rumors are Federal Reserve rumors in the United States. Already people are talking of the Fed stopping QT and slowing or halting rate hikes. Since 2008, both Chinese and American investors are used to being bailed out at the first sign of a serious slowdown, but this time is different. Policymakers view unsustainable asset bubbles as a threat. Preventative bailouts are over. It will take a lot more pain to get a shift in policy.