No Ja­pan-style bub­ble in China’s house mar­ket

China Daily (USA) - - VIEWS -

In a bid to cool their red-hot prop­erty prices, Bei­jing, Shanghai and Shen­zhen, and some ma­jor pro­vin­cial cap­i­tal cities across China suc­ces­sively in­tro­duced mea­sures to limit home buy­ing from the end of Septem­ber and dur­ing the Na­tional Day hol­i­day.

Those po­ten­tial buy­ers un­able to en­ter the hous­ing mar­ket be­cause of soar­ing prices, hope these reg­u­la­tory means will re­verse the tra­jec­tory of home prices to an af­ford­able level. Some of those who have bought homes, how­ever, worry the mea­sures will shrink the value of their prop­erty.

Un­doubt­edly, the adop­tion of the re­stric­tive home buy­ing mea­sures by 19 cities, most of them first-tier and sec­ond-tier cities, is a timely move to curb spec­u­la­tion and re­duce rises. But many peo­ple are also con­cerned the “emer­gency brake” put on these fast-ris­ing hous­ing mar­kets will pos­si­bly cause home prices to col­lapse as hap­pened in Ja­pan in the 1990s. How­ever, such wor­ries are un­founded. China is in a dif­fer­ent stage from that of Ja­pan when its prop­erty bub­ble burst. Com­pared with the in­ter­est rate ad­just­ments Ja­pan made to reg­u­late its high realty prices, the re­stric­tive mea­sures for­mu­lated by China this time are tar­geted at re­strain­ing spec­u­la­tive de­mand in the cities where hous­ing prices are be­lieved to be ris­ing as a re­sult of the in­flux of mi­grants and spec­u­la­tive de­mand.

Chi­nese peo­ple are prone to buy­ing real es­tates, es­pe­cially when prices climb, and spec­u­la­tive buy­ing pre­vails when prices are soar­ing. It is re­ported that among the cou­ples in Shanghai who di­vorced dur­ing the past months when home prices in the city were ris­ing swiftly, nearly 40 per­cent got a di­vorce for the pur­pose of by­pass­ing the lo­cal pol­icy that one fam­ily could only buy two homes at most.

By in­tro­duc­ing the re­stric­tive mea­sures, the author­i­ties are seek­ing to cool the over­heated prop­erty mar­ket, not smash the cur­rent high home prices. So, most of these mea­sures are mainly to curb spec­u­la­tive de­mand rather than the de­mand for a first home. Fur­ther­more, any dras­tic drop in home prices re­sult­ing from these mea­sures will likely cause the author­i­ties to make timely pol­icy ad­just­ments. Thus the re­stric­tive mea­sures are tem­po­rary ones only and will not lead to a col­lapse in the hous­ing mar­ket like the one in Ja­pan in the 1990s.

How­ever, many peo­ple are draw­ing com­par­isons to what Ja­pan did be­fore the col­lapse of its hous­ing prices in the 1990s, and dis­cussing whether the gov­ern­ment will pro­tect prop­erty prices or the ex­change rate. Around 1990, Ja­pan chose to boost the yen’s ap­pre­ci­a­tion through rais­ing its in­ter­est rates to at­tract the flow of foreign funds to Ja­pan. But there is no need to make such a com­par­i­son. Aside from its hous­ing mar­ket be­ing at a dif­fer­ent devel­op­ment stage from that of Ja­pan’s at that time, China has also adopted a dif­fer­ent mon­e­tary pol­icy from its neigh­bor. China is still in a cy­cle of in­ter­est rate cuts and there is no pos­si­bil­ity the gov­ern­ment will raise rates. China’s cen­tral bank has ruled out the pos­si­bil­ity of the ren­minbi’s con­sid­er­able de­pre­ci­a­tion, al­though it is ex­pected to con­tinue on a steady down­ward tra­jec­tory to de­pre­ci­ate mod­er­ately against the US dol­lar. A mod­er­ate de­pre­ci­a­tion of the ren­minbi is con­ducive to its on­go­ing eco­nomic struc­tural ad­just­ments, given that a weak ren­minbi will fa­cil­i­tate the coun­try’s ex­ports and thus leave more time for it to make the nec­es­sary ad­just­ments.

Some foreign me­dia and or­ga­ni­za­tions have raised their fore­casts for the growth of China’s gross do­mes­tic prod­uct in 2016. Stan­dard & Poor’s for in­stance has raised its fore­cast from 6.4 per­cent to 6.6 per­cent. That means China’s eco­nomic growth gen­er­ally en­joys a rel­a­tively op­ti­mistic prospect this year, which will un­der­cut the pos­si­bil­ity of a dras­tic de­cline or col­lapse of its house prices. The author is a FXTM an­a­lyst on Chi­nese mar­ket.


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