China house prices cooling

The push by China’s policymakers to rein in property bubbles looks to be getting traction, according to early indicators from the nation’s biggest cities.

Beijing home sales volume plunged 41% year-on-year last month, while Shanghai’s slumped 18%, China Real Estate Information data show, after new purchase restrictions and tightened mortgage lending. Transactions fell 50% in smaller cities.

Now policymakers must balance deflating property prices with safeguarding the expansion.

Efforts to curb excessive gains could cut 0.6 percentage point from 2017 economic growth, and as much as 1 point with aggressive national tightening, according to Morgan Stanley.

“Property construction will unlikely be a big support for the economy next year, as both sales and investment will decelerate,” said Wang Tao, chief China economist at UBS Group in Hong Kong. 

Sales will continue to slow and investment growth will remain moderate for the rest of this year, she said.

Market friction could complicate the situation. Developers and homeowners have been slow to reduce prices while potential buyers are holding off because of sticker shock or hope for discounts. 

Economists expect the standoff will last through the end of this year before weak sales gradually drag down home prices and start to weigh on investment early next year.

Developers staying on the sidelines have led to supply and transaction shortfalls. 

Total new property entering the market in October plunged 61% from a year earlier in Beijing, Shanghai, Guangzhou, and Shenzhen as developers sharply slowed sales, according to CRIC.

“Policymakers are afraid that if they push too hard, they’ll prick the bubble and steer the economy into recession,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia. 

“By deflating it gradually, risks are lower.”

Policymakers are encouraging different cities to tailor their actions then watch and wait instead of resorting to a broad national monetary tightening as in the past, Shen said.

“They’re trying to avoid repeating the chaos like last year’s stock rout.”


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