PBoC Liquidity Going Straight Into First-Tier Housing; Boom Compared to Stock Market Bubble of 2015

China's ping-pong housing policy has failed again. The government has no idea how to regulate the economy and housing prices are once again headed skyward as the broken economic system funnels credit straight into the housing market in first-tier cities.

The latest piece appearing in iFeng (originally appearing 澎湃新闻) relays an interview with Huaxin Securities chief economist Zhang Jun, who warns that liquidity is flowing straight into housing and the government is going to clampdown sooner rather than later. He sees a healthy end to the boomlet in prices after the government tightens buying requirements and/or lending standards, but let us not forget these standards were loosened again only a month ago. With the third- and fourth-tier markets left for dead and second-tier working through inventory, the first-tier is the only game in town. Rising bad debts impair bank's ability to lend, while weakness in the industrial sector makes banks leery of lending. The crash in stocks, WMP bankruptcies and trouble with P2P lending has investors turning back to real estate. The result is the liquidity gusher designed to smooth out economic growth went straight into a speculative bubble.

Intervention in the economy only appears to work when things are going well. Like King Canute, the Chinese Premier could demand the economy grow faster and with a little twist of the liquidity spigot at the PBoC, make it so. China can still artificially drive credit growth, which the Fed, ECB and BoJ would love to do, and it can even tell the credit where to flow initially, but it cannot make it stay there.

iFeng: 一线房价暴涨因流动性注入 拐点或不用等太久
February 28, Pengpai News (www.thepaper.cn) interviewed Morgan Stanley Huaxin Securities chief economist Zhang Jun. Zhang Jun believes that under the national real estate to the inventory in the background, is the first-tier cities housing prices rose modestly healthy and beneficial. However, the recent first-tier cities grew too much too fast, there are "out of control" signs, the current boom is difficult to maintain but also great risks. "Zhang Jun forecast, this year the purchase of first-tier cities is likely to increase efforts to tighten lending in order to prevent prices rising too fast," the ideal state is a return to steady or rose modestly state, but does not rule out the possibility there will be slightly lower. "

And no liquidity injection into the real economy, but real estate

This is a first-tier cities such skyrocketing why?

Zhang Jun believes two reasons. The first is due to a substantial increase in money and credit.

The latest central bank data show that in January the overall large-than-expected financial data, the month the new RMB loans increased 2.51 trillion, a record single-month record high. Although the effects of the surge in January and Chinese New Year credit data has a certain relationship, and the central bank itself said the general figures for January will not be excessive reaction. But Zhang Jun believes that the huge rise in monetary and credit or first-tier cities is closely related to the rapid expansion.

"This round of first-tier cities housing prices soaring in fact very easy for us to think of the situation by the end of 2014 to 2015, the stock market rose sharply, when the stock market rose a big reason is because there is a lot of liquidity into the stock market." Zhang Jun analysis, the current situation is very similar to the release of large amount of liquidity did not enter the real economy, but flows into the real estate market.

"Meanwhile, the residents themselves are thinking about how to configure the hands of liquidity, but now, stocks and P2P products many people do not dare to buy, for the residents of the difficulties encountered personal asset allocation, and it was generally thought to be relatively safe or real estate investment. "Zhang Jun said.

"Third and fourth-tier cities demand is very low, if you want to digest inventory rely more on improving demand and investment, but only the latter two are excited: the value of the asset must be expected," Zhang Jun analysis, first-tier cities have always been the weathervane for second and third tier cities housing prices, under the second and third tier cities high inventory predicament difficult to digest, first-tier and other cities housing prices rising is undoubtedly good for reducing inventory, "I think perhaps the why the first-tier cities prices have soared, but the government has no reason to immediately stop it."

..."I think many people have a sense of panic on the first-tier cities such high prices, many people may have been prepared to exit quickly from these high prices, but how long exactly it will take to appear in the first-tier cities is unknown." Zhang Jun believes the inflection point may not wait too long to see.

"I think the government has a much higher degree of care for the real estate market than the stock market, the current first-tier cities have been very unreasonably high, if the real estate bubble burst, it will cause very bad consequences, not only will second and third tier inventory reduction be out of reach, but the entire country's economy will suffer a heavy blow. "Zhang Jun analysis, rapid growth in house prices this year's first-tier cities could further strengthen efforts to purchase at the same time to tighten lending, and then it may be the turning point of house price growth.

"But I do not think that would be the turning point to bring prices fall, because it means that plunged the bubble burst, it is necessary to prevent, I think, will be the turning point, after the termination of skyrocketing housing prices, the ideal state is a return to steady or rose modestly state, but does not rule out the possibility of slightly lower."Zhang Jun said.
The ideal and what you get are two different things.

China.org: Shenzhen tries to cool realty market
He attributed the city's skyrocketing home prices to limited land supplies and strong demand from local residents, especially young people, as Shenzhen has developed into one of the most competitive cities in the country.

"Young people have developed strong purchasing power in Shenzhen, which has helped push up prices," said Qiao.

...In Shenzhen, particularly, new-home prices soared 52.7 percent year-on-year in January, the sharpest increase in a single month among all the major cities, followed by Shanghai and Beijing, where prices surged 21.4 percent and 11.3 percent year-on-year.

Average prices for new houses in Shenzhen reached about 43,000 yuan ($6,570) per square meter in December.

The sharp increase has resulted in "frenzy" buying from individual investors in Shenzhen, with some having bought houses by crowdfunding investment, according to local media reports.

"We have noticed that ... and more stricter purchasing policies will be introduced to cool the market," said Qiao.
Here are other recent posts covering the housing boom.

Govts Will Not Allow Home Prices to Fall, Oppose Developer Price Cuts
Guotai Junan Warns on Easy Money and Asset Bubbles

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