Latest PBoC Rate a Precision Strike On Housing Market, Housing the Worst Investment of 2017

The PBoC hiked before Spring Festival and followed with another hike on February 3. This has been dubbed a “precision strike” on the housing market because it wipes out the bank’s incentive to offer mortgage discount, pushing the interest rate on discounted mortgages below the market rate for similar debt.

iFeng: 央行之后:一夜之间 楼市又传来两大消息!

Open market operating rate of interest rates in response to pre-holiday MLF operating interest rate changes corresponding to further clarify the neutral attitude of monetary policy to guide the rational growth of monetary credit and short-term leverage to fall further.

This is a precision strike on the housing market.

The central bank confirmed that the money market rate hike results, in fact, means there is a substantial increase in mortgage interest rate risk, the current benchmark lending rate of 4.9% over 5 years, which means that in accordance with the reasonable level of 5.5%, all the discount mortgages will be extinct, otherwise the bank is better off buying bonds.

And after 16 years of an abnormally prosperous real estate market, in the future there is no demographic support, have to rely on mortgage credit support, if in the future mortgage interest rates continue upward, superimposed on the government efforts to limit speculative purchases and credit in first- and second-tier cities, real estate sales will continue down, the property market’s severe winter will arrive.

There were two big changes in the housing market as well.

First, Chongqing moved to slow the velocity of money in the housing market by making it impossible to lend against pre-sold units. Some developers would list a home for pre-sale, but if they didn’t sell, they would use the unsold inventory for mortgage collateral. Under the new rules, the developers cannot lend against these units.

Therefore, this move in Chongqing, for developers, especially small developers, I am afraid we must cry. For them, no longer with empty hand play games, must be put in real money, build the house in order to get the pre-sale permit, to get the pre-sale permit, go out to sell, but once you start selling, it is necessary to sell to the end, if you don’t sell, you can not recover your capital.

Second, the government released a new land policy designed to drive down top-tier population and push people into surrounding cities:

Yesterday’s other major event is the State Council issued a national land outline, the most important point is that the Beijing-Tianjin-Hebei, the Yangtze River Delta, the Pearl River Delta and other regions into a world-influential urban agglomeration to revitalize the stock of land-based , Strictly control the construction of new land, on the ground and underground space, and guide the central city population to the surrounding area orderly transfer.

Simple explanation, this is to continue to use the current land system, big cities do not put the land, and attempt to drive everyone with high prices to the surrounding cities, thus forming the concept of urban agglomeration. The main consideration is the limited carrying capacity of large cities, so no longer expand the size of large cities, rational allocation of national resources, can not let some cities Chengsi even let some cities starve to death. To the interests of both James, balanced development. Theoretically and subjectively to make the first-line population out to three or four lines, the first-line house prices fell, three or four lines up to go to inventory.

This leads to the conclusion that property is the worst investment in 2017:

Fourth, in 2017, the property market will be the worst investment.

…From the time the rate hike lasts, the liquidity tightness cycle in the past suggests that for at least a year to a year and a half, if from 2016 August date, will continue until at least 2017. Money shortage from 2010 to 2013, then money shortage in 2016, roughly a three year cycle, tight liquidity cycle caused by tight regulation: the economic downturn – monetary money – to stimulate real estate, housing prices – currency Real estate investment to bottom out, short-term stabilization of the economy – to tighten macro-control, anti-risk to deleverage – money shortage, debt disaster, stock market crash, devaluation, a chicken feather drops and the economy down again, monetary policy eases and the economy heats up. 2016-2017 early devaluation of the exchange rate, capital outflow, soaring house prices after the regulation, money shortage, debt and so on are liquidity elastic cycle caused by the impact.

…By the real estate regulation and the impact of the Spring Festival holiday, the second half of January a sharp decline in commercial housing turnover. By the 17-year purchase tax incentives and the impact of the Spring Festival holiday, passenger car wholesale and retail sales growth slowed. During the Spring Festival, China’s consumption structure changes, in addition to the traditional New Year and gold jewelry hot, green smart goods and Internet consumption has become a new trend. Tourism and film consumption record high. During the Spring Festival, industrial production slowed down, compared with January last year, the 6 major power generation coal consumption fell 7.7 percentage points. January steel prices up 67.4% year on year, down from 76.5% in December. Cement prices remained stable. Oil prices, non-ferrous trend differentiation, the growth rate of copper prices and aluminum zinc growth rate has been a pullback. Before and after the Spring Festival fruits and vegetables prices and meat prices rose significantly. The US dollar weaker, the RMB exchange rate short-term stability.

Author: 罗臻 http://www.investinginchinesestocks.blogspot.com

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