A paean for property speculators and why the market needs them to function properly

[President] Xi underlined his housing policy when he outlined his vision for the mainland’s development over the next five years at the opening of the party congress last week, stressing “houses are built to be inhabited, not for speculation.” -- Property Post, October 25

Thus spoke the master, whereupon tens of thousands of loyal servants leapt to obey the command by instituting yet higher down payment ratios and more rules to drive off the hordes of evil speculators.

The results were predictable. A trend of declining home sales across the country established itself all the more firmly. Fewer houses will be built for either habitation or speculation. They will simply not be built.

Once again, we have here the law of unintended consequences at work. It is an echo of this week’s decision by the Communist Party Congress to adopt a reference to Xi Jinping Thought in the party constitution. My guess is that it will weaken the constitution more than it strengthens the president.

But back to housing. People don’t like venomous snakes. People also don’t like speculators. Yet without snakes we would be subject to more plagues of rats. Without speculators we would be subject to more shortages of housing.

Speculators serve a valuable social function in taking the financial risk of development off the hands of developers, thus letting them get on quickly with their next housing projects.

And if you think that property speculation is a guaranteed easy way of making unearned money, then go and try it yourself some day. It all looks easy at the moment, but wait until we get a market correction and we shall talk again.

They hadn’t told the wife, or husband, that they had taken out a second mortgage to punt the market. Ouch! Owww! There but for the grace of God ...

It is not always quite so visible in the property market. Property speculators tend to suffer in silence when it all goes wrong, but there was certainly some screaming when our property market was crashing 15 years ago.

We let them scream. That’s the way it should be. We envy them for their luck on the way up. We laugh at them for their false hopes on the way down. Either way, we forget that we would probably not have been able to buy our own homes quite so quickly and easily, had they not been there.

Tighter regulation does indeed hinder speculators, but it never stops them and I doubt the price we pay is worthwhile. Leave alone that market liquidity dries up, the burden of lending restrictions and punitive taxes falls more heavily on genuine homebuyers than it does on speculators, a fine example of cutting off your nose to spite your face.

As much to the point, both on the mainland and in Hong Kong, what is the point of fulminating about speculators while encouraging speculation with low interest rate policies?

The verdict is in across the world on quantitative easing and suchlike “stimulatory” tinkering with the price of money. It stimulates speculation in financial markets only. It does not help the mainstream economy.

Take a look at the chart, Mr President. It represents your administration’s thinking on interest rates and it tells you why you have speculators.

Now look in the mirror and it will tell you who has really driven property prices so high in China.