Double Double China's Housing Bubble: Policy Loosens Across the Board

Chinese cities are cutting mortgage rates, settlement restrictions and price limits. Speculators are already buying with both hands.

iFeng: 长三角楼市开春解冻 多城限价现松动

At the end of 2018, the loan interest rate of some houses in Hangzhou was lowered from 25% to 20%. Sales prompted him to apply for mortgage as soon as possible. Under the repeated urging of sales and banking, Zhang Feng handed over the mortgage materials before the Spring Festival. In mid-February, he received a notice that the interest rate rose by 10%, provided that Zhang Feng had to buy a bank of 200,000 yuan of 3-year wealth management products.

Zhang Feng had already purchased wealth management products at this bank, so he refused this condition. A few days later, the banking manager told him that he could declare a 10% interest rate. Although this interest rate is already low enough, Zhang Feng believes that Hangzhou mortgage interest rates will also go down.

In his view, loose interest rates mean loose policies. For homebuyers, mortgages are a major part of household spending. If mortgage costs are lower, “I suggest you can buy a house. When I bought a house in Tianjin in 2009, the interest rate hit seven. Fold, so I quickly rushed to the bottom."

Zhang Feng is only a microcosm of the recent investment in the property market. Since February, the property market policies of major cities in Hangzhou, Nanjing, Hefei, Changzhou and Ningbo in the Yangtze River Delta have changed to varying degrees, including the relaxation of settlement conditions, the relaxation of price limit policies, and the reduction of mortgage interest rates.

Cheng Jun, head of marketing for Greentown Real Estate Group, said that the current regulation policies of some cities in the Yangtze River Delta do have a tendency to relax. However, the possibility of full liberalization is very small, and more is at the level of settlement and social security. “I think the next most likely thing to relax is the sales restriction policy and the downgrade of the loan interest rate.”

Ding Jiangang, a real estate research and comment expert, stressed that according to the current trend, there will be more cities to follow up: "The sub-city policy determined by the Central Economic Work Conference at the end of last year is a basic principle."

Governments say they won't allow price increases:

The Nanjing Development and Reform Commission also stressed that Nanjing will continue to implement the central government's important decision to resolutely curb housing price rises, insisting on the "house is used to live, not for speculation" positioning, insisting that the real estate market regulation policy is unwavering, and the strength is not relaxed.

There are initial signs of panic buying in some cities:

Cheng Jun revealed that Green has always monitored the market reaction. The recent data and phenomena from the first-line feedback indicate that the market has begun to change, especially in Suzhou, Hangzhou, Hefei and other places. "One is that the number of visits is more than before, 40% or even 50% higher than before the Spring Festival. The second is that customers have some urgency and panic in buying a house. Policy changes such as the cancellation of price limits and changes in mortgage interest rates have brought expectations. The willingness of customers to purchase a house creates an incentive." Cheng Jun analysis said.

However, he also stressed that the turnover of some cities has not yet rebounded too much. The recent market changes are mainly caused by the staged purchase intention of the Spring Festival. As a marketing staff, he is still cautious about the market in the first half of the year: "I feel that the market fundamentals will not change much in the first half of the year, and the market fundamentals are expected to be better in the second half of the year."

iFeng: 楼市温度微微升 监管部门出手稳定市场预期

A large-scale housing company in Beijing told the 21st Century Business Report that the recent hot spot in the property market is due to the loosening of the external policy environment and the expectation of changes in the market. Another reason is that the market demand that has been suppressed by the policy for a long time is seeking to be released. However, if the regulatory policy is not fundamentally loose, the release is still relatively limited.

Yet the pick-up in activity is clear:

After the Spring Festival, in the Yanjiao area of ​​Hebei Province, which is close to the Tongzhou District of Beijing, many second-hand homeowners began to reluctantly sell and continuously raise the price of the house. Affected by this, Yanjiao once again showed buying sentiment, and many practitioners used “instigation” to describe the Yanjiao property market.

The Real Data database of the Shell Research Institute shows that in October 2018, the average transaction price of second-hand houses in Yanjiao was only 16722 yuan / square meter. By January 2019, the average transaction price of second-hand houses had reached 18,805 yuan / square meter.

The central government and cities have started jawboning the market, warning speculators and lenders not to ignore regulations as they always do:

In this context, the regulatory authorities have been making statements and stabilizing market expectations in the near future.

On February 25, Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, attended the press conference of the State New Office. He listed real estate financial risks as “a few important risk areas to be closely watched in the next stage”, emphasizing the need for real estate development loans and personal mortgages. Loans continue to implement prudent loan standards.

Wang Zhaoxing said: "To treat differently, implement a differentiated real estate credit policy. For those who solve housing difficulties and improve housing conditions, and have their own financial ability to pay, they should continue to provide corresponding loan support; and for those who invest, Even for speculation and speculation, we have to implement stricter lending standards, and some may have to increase the down payment ratio, and some have to adjust the risk pricing of interest rates."

Some local governments have also introduced policies to manage expectations. On February 28, several departments of Baoding City jointly held a meeting to emphasize the regulation of home purchase financing. “It is strictly forbidden for real estate development enterprises and intermediaries to provide financing for down payment for purchases. It is not allowed to make a down payment for the purchaser to make a down payment or to make a down payment. It is not allowed to provide down payment for the purchaser through any platform or institution, and may not induce in any form. It finances the down payment through other institutions and does not organize 'crowdfunding' purchases."

Chinese real estate policies have never really worked. When credit growth decreases, home sales and prices cool. When credit growth increases, home prices rise no matter what regulations were in place. Tighter regulations in the last cycle intensified speculative fever as capital flowed into an ever shrinking slice of the market. Speculators kept buying because they banked on policy easing at the cycle bottom. Those speculators have been proven correct thus far.

If China persists with tight real estate controls and increases credit growth, it will be the first major test of government control over real estate. It will also be a major test of the financial system. The prior rounds of credit growth were driven in part by real estate investment. Barring another forced stimulus, will credit grow if the government successfully restricts real estate investment and speculation? History says government controls will fail, credit growth will rise at least temporarily and home prices will rise double-digits (annualized) starting with first- and second-tier cities.