End of the Road: China Launches 3-Pronged Attack on Housing

If domestic and global markets alike are betting on Chinese stimulus to bail them out again, they had better hope the nascent housing recovery in China is stopped in its tracks by a 3-pronged regulatory push. If not, there may be no good option as the government weighs a further economic slowdown against a runaway housing bubble, both of which could lead to currency devaluation.

iFeng: 三打房地产,组合拳能给楼市降温吗?
Sogou: Three hits to real estate, can combination boxing cool down the real estate market?
In China, how many years does it take to buy a suite and recover the cost by rent?

The answer is 89.

Institutional research data show that the rent-to-sales ratio in first-tier cities is already less than 1:600, far lower than the international standard of 1: 300 to 1: 200. Xiamen has a minimum rent-to-sales ratio of 1:1071, and it will take 89 years to return to the original.
The ratio is price to monthly rent, 25 years = 300.

What's driving this round of price increases?
However, the property market in some cities in China is still on the hot side.

Recently, a residential site in Suzhou Industrial Park sold for 30,287 yuan, making it the highest unit price in local history. Housing prices for second-hand houses in Suzhou Industrial Park have reached 40,000 yuan per square meter, up 8% from the beginning of the year. Queuing is also seen in some buildings.

In response to the overheated local property market, the state has launched a "combined fist".

Experts interviewed by the China News Agency that China is a through train believe that from the perspective of expanding domestic demand, stabilizing employment and benefiting people's livelihood, the space for stimulating the real estate market has narrowed, and stabilizing house prices is an important force for stabilizing the economy.
The government's response is "three punches."
First punch, warning prompt of Ministry of Housing and Construction

After this year's short-lived "little spring" in the property market, the Ministry of Housing and Construction began to "give priority attention" to some hot cities.

In the past two months, the Ministry of Housing and Construction has successively issued "early warning tips" for cities where house prices have risen too fast.

On April 19, the Ministry of Housing and Construction gave early warning to 6 cities with large fluctuations in house prices and land prices in the first quarter of 2019. On May 18, the Ministry of Housing and Construction issued an early warning to Foshan, Suzhou, Dalian, Nanning and other four cities where the price index of newly-built commercial residential buildings and second-hand residential buildings has increased significantly in the past three months.

After the warning prompt, Suzhou, a typical representative city, has begun to step up regulation of the real estate market.

In order to control the heat of land auction, Suzhou directly lowered the land ceiling price. In order to prevent the property market from overheating, Suzhou will restrict the transfer of newly-built commercial housing in the whole area of Suzhou Industrial Park and some key areas of Suzhou High-tech Zone. Recently, Suzhou also held a symposium on the real estate industry to clarify that if several major indicators of the real estate market cannot be controlled, the regulation will be increased immediately after July.
Keep an eye on Suzhou real estate. Prior tightening rounds have always exacerbated speculation because tightening policies take time to ramp up and prices don't come down until after the credit impulse peaks, usually after the last of the buying restrictions is in place. Muscle memory is telling speculators to buy everything that isn't nailed down.
The second punch, supervision of illegal funds into the property market

The second punch was made by the CIRC.

Guo Shuqing, chairman of the China Banking Regulatory Commission, said publicly on the 25th that excessive bubbles in real estate and financial assets should be resolutely avoided. Prior to this, the CIRC issued the "Notice on Carrying out the Work of" Consolidating the Achievements of Anti-chaos and Promoting Compliance Construction ",which clearly defined the key points for financial institutions to provide financing to housing enterprises in violation of regulations, including front-end financing, providing financing to projects with substandard qualifications and providing funds through shadow banking channels in violation of regulations.

With the implementation of the policy, the illegal inflow of funds into real estate was punished. According to media reports, in only 50 days since April (April 1 to May 20), 32 out of 223 fines issued by the local bank and insurance regulatory bureaus involved in illegal "blood transfusion" of real estate fines, with fines totaling 10.688 million yuan.

Zou Lan, deputy director of the central bank's financial markets department, reiterated at a media briefing on May 10 that the orientation of real estate regulation and real estate financial policies has not changed and is consistent. In 2019, the central bank will continue to strictly follow the orientation of "no speculation in housing" and the goal of "three stability" and adhere to the continuity and stability of the real estate financial policy.
I didn't see any mention that this is Suzhou alone. Even if it was, it's still a drop in the bucket of shadow financing. The credit is flowing! to the tune of 300 billion yuan in April alone. See: Real estate trust outshines others "blood transfusion" housing enterprises nearly 300 billion in April

The Politburo is the third punch:
Cooperate with the central government policy, all places hit the third punch.

According to incomplete statistics, in the first four months of this year alone, all localities have issued more than 160 regulatory measures for the real estate market. In May, in response to signs of a hot property market in some regions, various localities adjusted their measures to local conditions frequently.

Hainan has made it clear that it is not allowed to build new villager hostels without approval, and it is strictly prohibited to develop real estate in disguised form. Hefei has clearly tightened the land bidding rules, and affiliated companies are not allowed to bid for the same piece of land. Beijing has accelerated the construction and allocation of co-owned housing and studied the adjustment and improvement of the allocation policy for co-owned housing.

In addition, after a five-month drop in mortgage interest rates (December last year to April this year), average mortgage interest rates in some cities have rebounded again. Since the middle of May this year, mortgage interest rate policies in Nanjing, Jiangsu, Bengbu, Anhui, Nanning, Guangxi and other places have shown signs of tightening, with most of them raising the interest rate for second-home loans.
Economists repeat that China cannot let housing get out of control, that there's little room for stimulating housing. Yet at the same time, any economic stimulus will flow into housing. If China cannot get a handle on the real estate market, it will be unable to stimulate. Or if it stimulates and controls fail, another phase of the housing bubble will push a larger share of the urban middle class out of the market.
Experts say there is less room to stimulate the property market.

Yan yuejin, director of research at the think tank center of yi ju research institute, said in an interview with the China news agency, the state has played a combination to cool down the property market, which shows that the central government's overall thinking on stabilizing property prices has not changed and the control efforts have not slackened. this also serves as a warning to cities that are under great pressure to follow up the rise in property prices and helps the overall stability of the property market.

The stability of the real estate market is closely related to people's livelihood.

Yang Weimin, deputy director of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference, once pointed out that high housing prices in disguised form overdrawn people's spending power and squeezed the real economy. Lou Jiwei, director of the Foreign Affairs Committee of the 13th National Committee of the Chinese People's Political Consultative Conference, said a few days ago that external shocks will not affect China's economic development, but high house prices will. He believes that the two key factors affecting China's economic development are high leverage and high housing prices.

Yin Zhongli, a researcher at the Institute of Finance of the Chinese Academy of Social Sciences, said in an interview with the China News Agency that the direct reason for the government's moves to regulate the property market is the rapid rise in house prices in some cities, while the underlying reason is the drag of high house prices on expanding domestic demand, stabilizing employment and benefiting people's livelihood. Faced with internal and external pressures, China's space to stimulate the property market has narrowed. Stabilizing property prices is an important force in stabilizing the economy.
Suzhou has a minimum of six weeks to step up its real estate controls or a max of 12 if they're going by July data.

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