Buying Restrictions Adding Fuel to Leveraged Land Bubble
The spike in August home prices and sales was driven by the introduction of buying restrictions and rumors of buying restrictions. Future demand is being cannibalized and eventually the government will tighten too much, setting off the next downturn…
Every restriction order, almost turned into panic buying continues to rise and the starting gun, this year the introduction of restriction the city, almost all the case. From the first-tier cities Shanghai and Shenzhen purchase in March, and later, Xiamen, Wuhan and other second-tier cities to join outside of the purchase of interpretation it seems to agree: must rush ahead of buying restriction and grab a house. From the National Bureau of Statistics released on the 19th of August, 70 cities housing data to see, indeed.
Teh speculative fervor is having no long-term positive impact on the economy. The pricier cities are seeing extreme price distortions, while the third- and fourth-tier, the cities that need to reduce inventory, are still cold:
This year the real estate market and real estate policy fiery performance periodically changing fast, caught a lot of people by surprise. As we all know, the theme of real estate this year is “reduce the inventory”, but the current real estate market’s performance has been a complete departure from the theme, the inventory in third- and fourth-tier cities hasn’t seen much improvement, first- and second-tier cities with no inventory issues cities have seen prices rise, the a rapid advance beyond the imagination of many people, causing panic in the market.
Where buying restrictions or credit restrictions are launched, a contrarian surge in prices follows:
…while hot cities resorted to the government policy to reduce the temperature, whether the purchase limit or credit limit, have become a contrarian indicator interpretation of future trends. Purchase and credit limits triggered rising prices and panic buying, is indeed worthy of study. From the reasons to see this year, housing prices, in addition to the theme of reduce inventory and real estate policy stimulus, and monetary policy, this year’s global economic cycle, global economic recovery is still weak, the external market continued expansion policy of negative interest rates triggered asset shortage is mainly due to large capital into the real estate, not only Chinese funds, global funds are looking for safe assets. Thus, in the case of the domestic manufacturing industry still faces difficulties, first- and second-tier cities real estate become the first choice of large capital inflows. July interesting financial data is a case in point: RMB loans increased 463.6 billion yuan a single month, but residents on long-term loans increased by 477.3 billion yuan, the vast majority of residents of the new long-term loans is the mortgage.
I covered this here: Residential Mortgages Account for 102pc of Lending Growth, Rate Cut Coming
The author of this piece, Ma Guangyuan of Kung Fu Finance, blames the land market and rising leverage for the failure of buying restrictions to this point:
In the case of both living and investment demand expansion, re-took initiatives such restriction would like to cool the property market, in the short term with little effect. Due to the rapid expansion of residential and investment demand, increasing supply of hot urban real estate market has become imperative. The key supply is land supply, avoiding high leverage and get to some local governments to engage in starvation marketing. The reason why this year, the land market “King”is frequent, lower land supply is the fundamental reason. Shanghai first seven months of land supply only completed 30% of the plan, Beijing has been three consecutive months there is no piece of residential land supply, in hot cities there are land supply issues.
Aside from local governments artificially controlling the supply of land and engaging in starvation marketing, real estate companies are using high leveraged to push up land prices. In Shanghai the most expensive “King” Rongxin, for example, its 2015 sales revenue of 29.5 billion yuan, however, but this year the total amount of land acquisition is more than 34.5 billion yuan, high leverage is astounding. The biggest bubble today isn’t a housing bubble, but a land market bubble. Without tackling land supply and deleveraging efforts, lazy buying restrictions and other measures to cool the property market, let alone cure it, will fail.
He warns governments: increase land supply and attack leverage, because buying restrictions historically take 6 months to have the desired effect. If governments do not act swiftly, they could see prices soar for another six months and risk a bursting bubble when the turn in prices arrives.