Stimulus Coming: Will China Lose Control of Real Estate Market?

Chinese media is asking if home prices will take off in the wake of stimulus. Certainly if credit growth is about to pick up, speculating in homes and A-shares is a good idea. This is even before considering currency risks.

First up is Shenzhen's hike in mortgage rates posted earlier today. This is seen as a pre-emptive strike against real estate speculation.
iFeng: 信号！全面宽松确认后房价要蠢蠢欲动？

Don't worry, Shenzhen has taken the lead in further raising the interest rate of the first home loan. Although it is a "euphemism" statement on the regulation of the property market, it is obviously a clear signal to the real estate market. It will continue to maintain the high interest rate of the property market and freeze the credit of the property market. Scale expansion.

The brokerage Chinese reporter verified from many parties that the first house rate of the construction bank Shenzhen Branch housing loan today (July 25) was adjusted from the benchmark interest rate by 10% to 15%, and the second suite to 20%. The news came out and exclaimed.

Fuzhou and other cities are also hiking mortgage interest rates:

The cities that are raised are Fuzhou and so on. In addition to individual banks, Fuzhou's first home loan interest rate has generally risen 15% from the benchmark interest rate.

Similarly, including Bank of Communications, Bank of China, etc., the first-home loan interest rate was adjusted from the benchmark interest rate by 10% to 15% of the benchmark interest rate; the second-home loan interest rate was adjusted from the benchmark interest rate of 15% to the benchmark interest rate of 20%. According to media reports, Guangfa Bank currently has a 15% increase in the first home loan from the benchmark interest rate, and a second home loan from the benchmark interest rate by 20% to 25%. Everbright Bank also raised the first-home loan by 30% from the benchmark interest rate, and the second-home loan rose by 35% from the benchmark interest rate.

Shanghai will continue restricting home purchases and home loans:

Shanghai Mayor Ying Yong said today that it is necessary to adhere to the "double limit" policy of restricting purchases and loans, and will continue to strengthen the regulation of the real estate market.

Limiting credit flows is the key:

In fact, from the perspective of policy intentions, under the direction of comprehensive easing, the active fiscal policy is more active, the monetary policy must guarantee reasonable financing needs, and the supply of funds will continue to be plentiful. However, these steady growth of excess loan funds must ensure that the flow to the real economy, rather than continue to flow to real estate.

Capital controls may have worked for the capital account. There's little evidence that capital controls have worked domestically, particularly when credit growth is rising.

The current round of real estate rise has been up to 37 months. According to past experience, the effect of regulation and control should have already appeared, and house prices should have been firmly controlled. However, local governments are still stepping up their efforts to introduce new policies, new ideas, and stabilize housing prices.

Real estate controls haven't eased because credit growth hasn't slowed enough to impact the housing market. For years on end, China has failed to stem the flow of capital into real estate, only by stemming the growth of credit has it triggered cyclical downturns in real estate.

For example, Pan Shiyi, chairman of SOHO China, publicly stated in recent days that simply talking about housing prices can never be clearly seen in the real estate market, and housing prices depend only on how much the central bank sends. "It does not depend on the Ministry of Land and Resources, nor on the Ministry of Housing and Construction. It depends only on how much money the People's Bank sends. The amount of money sent by the central bank will naturally rise."

At present, financial and monetary leverage, such as mortgage interest rates, is still an important barrier to the entry of excess credit funds into the property market. Once the local government has made some relaxation in terms of purchase restrictions and price limits, the mortgage interest rate can be used as the last threshold, which is better than nothing.

Mortgage rates will hold housing in check if rates are higher than the rate of home price appreciation. If mortgage rates are below the rate of appreciation, speculators will have every incentive to find ways of diverting other forms of credit into the housing market.