U-turn from policy makers on home prices could bring whiplash
Having encouraged home buying to ‘de-stock’ market beset by housing glut, officials abruptly pull plug as ‘asset bubble’ reminiscent of the stock-market bull run hits leading cities
From the start of the year to the fourth quarter, China’s housing-market policies saw a U-turn as the monetary loosening policy to ease the country’s massive housing glut has given way to an unprecedented tightening, targeting an “asset price bubble”. But as the curtain falls on the year, critics pose one question: Is all the haste necessary?
“The ‘destocking’ priority, set up in late 2015, was meant to ease the housing oversupply in third- and fourth-tier cities but ended up pushing up the home prices in first- and second-tier cities, with the inventory in lower-tier cities little cut,” Chinese Academy of Social Sciences researcher Ni Pengfei said.
In early February, the People’s Bank of China lowered the down-payment limit for first-time buyers for the second time in five months - from 25 per cent to 20 per cent. The move was heralded at that time as a measure to cut inventory, part of President Xi Jinping’s “supply-side reform”. Eight months later, 16 cities were forced to impose higher down-payment requirement to avoid runaway prices there going out of control.
Excess liquidity, after five consecutive cuts in benchmark interest rates, along with local authorities’ raising of housing provident fund loans quotas, have driven homebuyers to the first- and second-tier cities, and the one-way bet of a home-price surge there encouraged rampant speculators - aided by various forms of shadow banking. These factors, along with tight land supply in key cities that was described by some critics as a “hunger game”, created an unprecedented market rally that is reminiscent of the stock market bull run in 2015.
