Middle class fall prey to Beijing’s manipulation of the property market
Andy Xie says grief awaits Chinese taken in by government policy moves that in fact help to sustain the bubble
China’s home sales decline as government’s market-cooling measures take effect
Starting from the middle of 2015, following a year-long slump that looked like the first stage in the bursting of a big bubble, the property market began to heat up again. The driving force was shadow banks funding down payments.
After the stock market crashed, the shadow banks that supplied leverage there were looking for other demand. Down-payment financing in tier-one cities became a hot market. Like ordinary speculators, the shadow banks believed prices would never fall in the three tier-one cities (Beijing, Shanghai and Shenzhen). Hence, why would down-payment loans be risky?
How to solve China’s property bubble
As the market began to heat up, land kings appeared in these cities. Some developers were paying more for the land than the completed properties were going for. This phenomenon of “dough costing more than the bread” poured oil on the fire. People were led to believe that the bread’s price would surely catch up. By this spring, property sales were rising by over 50 per cent in value.
In a bubble, there are often urban legends about how buyers show up with bags of cash. Unfortunately, the real story has to do with debt. As the market exploded, the banks joined the game in a roundabout way, allowing so-called consumption loans to be used for down payments. It’s hard to believe that the banks that provided both consumption loans and mortgages to the same individual or family did not know the real story.
China’s household debt has risen from 5.6 trillion yuan to 31.1 trillion yuan (HK$35.8 trillion) between August 2008 and 2016, according to official statistics.
