Home truths from IMF on property price threat

Mon­e­tary fund says sys­temic cri­sis could fol­low ‘un­sus­tain­able’ boom

China Daily (Canada) - - BUSINESS - By GAO CHANGXIN in Shang­hai gaochangxin@ chi­nadaily.com.cn

The In­ter­na­tional Mon­e­tary Fund is­sued a warn­ing on Thurs­day about an “un­sus­tain­able” hous­ing boom.

The agency also launched a new in­dex that tracks de­vel­op­ments in the global hous­ing mar­ket, in an ef­fort to avoid the boom-bust pat­tern in house prices that it said pre­ceded more than twothirds of 50 re­cent sys­temic bank­ing crises.

The Wash­ing­ton-based fund’s new global house price in­dex showed that 33 out of 52 coun­tries, in­clud­ing China, ex­pe­ri­enced in­creases in hous­ing prices over the past year.

“While a re­cov­ery in the hous­ing mar­ket is surely a wel­come de­vel­op­ment, we need to guard against an­other un­sus­tain­able boom,” Zhu Min, the IMF’s deputy man­ag­ing di­rec­tor, wrote in a blog post on Thurs­day.

The ra­tios of house prices to rents and in­comes are of­ten used as an ini­tial check on whether house prices are out of line with eco­nomic fun­da­men­tals, Zhu wrote.

And those ra­tios re­main well above the his­tor­i­cal av­er­ages for a ma­jor­ity of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment coun­tries, in­clud­ing Aus­tralia, Bel­gium, Canada, Nor­way and Swe­den, where a se­ries of house prices, rents and in­comes over a num­ber of years is avail­able.

In China, the price-to-rent ra­tio is well above 50 in Bei- jing and Shang­hai, much higher than the his­tor­i­cal level in de­vel­oped economies. And hous­ing prices have started to soften, which are stir­ring wor­ries that China’s hous­ing mar­ket might crash and cause an eco­nomic “hard­land­ing”.

The aver­age price in 100 Chi­nese cities sam­pled was 10,978 yuan ($1,770) per square me­ter in May, a dip of 0.32 per­cent month-on­month, ac­cord­ing to the China In­dex Academy Ltd, a Bei­jing-based re­search in­sti­tute that’s wholly owned by SouFun Hold­ings Ltd. That marked the first month-on-month drop since June 2012.

“We do not ex­pect a sud­den col­lapse of property prices or a fi­nan­cial or bal­ance-of-pay­ments cri­sis, as seen of­ten in emerg­ing economies”, wrote UBS AG’s Hong Kong-based China economistWang Tao in aMay 27 note.

She said that home­buy­ers in China aren’t heav­ily lever­aged and the govern­ment still has many ways to sta­bi­lize con­struc­tion and sup­port eco­nomic growth. The govern­ment, for ex­am­ple, can in­crease in­fra­struc­ture in­vest­ment and sub­si­dized hous­ing con­struc­tion, ac­cel­er­ate pro-growth re­forms and even­tu­ally ease home pur­chase re­stric­tions as well as re­lax credit and hukou (res­i­dence) poli­cies to help boost property de­mand.

In his blog post, Zhu said that the tools for con­tain­ing hous­ing booms are still be­ing de­vel­oped, but he en­cour­aged coun­tries where home prices are “ex­u­ber­ant” to take ac­tion.

“The in­ter­ac­tions of var­i­ous pol­icy tools can be com­plex. But all this should not be an ex­cuse for in­ac­tion. The in­ter­lock­ing use of mul­ti­ple tools might over­come the short­com­ings of any sin­gle pol­icy tool,” he wrote.


A vis­i­tor to a hous­ing ex­hi­bi­tion in Shang­hai in April in­quires about a property project. The IMF’s new global house price in­dex showed that 33 out of 52 coun­tries, in­clud­ing China, ex­pe­ri­enced in­creases in hous­ing prices over the past year.

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