No Monetary Stimulus Coming: China's Housing Trap

In the wake of the RRR cut and overall decline in interest rates, including mortgage rates, articles about the impact on housing are coming out. The common theme is no, housing isn't going to be revived by the RRR cut. However, the bigger story is why these articles are being published. Chinese expect monetary stimulus will save housing. If at any time China decides to pump money into the economy, all levels of Chinese society are going to pour capital into the housing market. Exactly what the Chinese government doesn't want.

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A certain degree of positive real estate, but the impact or limited

For this RRR cut, some analysts believe that this may be able to hedge the current property market to a certain extent, but under the keynote of “staying and not speculating”, the degree of influence remains to be tested.

According to Xinhua News Agency, the Central Economic Work Conference in December 2018 pointed out that "it is necessary to build a long-term mechanism for the healthy development of the real estate market, and insist that the house is used for housing, not for the purpose of speculation, because of urban policy, classified guidance, and taming the city. The government's main responsibility is to improve the housing market system and housing security system."

Yan Yuejin, research director of the Yiju Research Center think tank, said that after the RRR cut, the bank's loan policy will tend to be loose, including development loans and personal mortgage loans, and even loans in the rental market. In fact, they will face a loose concept. Helping the follow-up of such markets to be active.

Previous market views pointed out that some real estate companies face certain financial pressure this year. According to figures released by the central bank's Shanghai headquarters, in November 2018, the city's domestic and foreign currency real estate development loans decreased by 2.191 billion yuan, a year-on-year decrease of 1.2 billion yuan.

On the other hand, Yan Yuejin pointed out that it must be seen that the Ministry of Housing and Urban-Rural Development should set the price of the property market in 2019 to be stable, stable, and stable. Therefore, the RRR is not directly related to the property market, nor should the property market be too fanciful. Fully liberalized.

Pan Xiangdong, chief economist of New Era Securities, publicly pointed out that after the RRR cut, the bank capital pressure will be further released, which will help guide the mortgage interest rate down. However, under the large-scale control framework of “staying in the house, not relying on the city, policy, and classification guidance”, it is unlikely that the old road will be fully stimulated.

On December 15, 2018, the National Bureau of Statistics released the changes in the sales prices of commercial housing in 70 large and medium-sized cities in November 2018. In general, the sales prices of commodity housing in first-tier cities have risen and fallen, and the growth rate of second- and third-tier cities has been stable.

Specifically, from the ring, the sales prices of new commercial residential buildings in the four first-tier cities rose slightly by 0.3%. Among them: Beijing and Shanghai rose 0.6% and 0.5% respectively, Guangzhou was flat, and Shenzhen fell 0.2%. The sales price of second-hand homes fell by 0.4%, a decrease of 0.2 percentage points from the previous month. Among them: Beijing, Shanghai, Guangzhou and Shenzhen fell by 0.6%, 0.1%, 0.3% and 0.2% respectively.
The flip side is if banks don't want to lend and Chinese don't want to borrow for non-speculative business investment, the impact of net monetary stimulus will also be limited. China is in a much tougher spot than many investors realize and it is also, by it's own prudent policymaking, limited in its options.


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    1. The big question about the RRR cut is will there be forced lending. China has forced SOEs and local govts to borrow in the past, but the prior round of stimulus pushed local govts into off-balance sheet borrowing with LGFVs. If borrowers don't want or cannot afford new debt, the cut in RRR ratios will have little impact.