One week ago we demonstrated just how massive the second Chinese housing bubble when we showed the ridiculous move at the epicenter of China's latest scramble to reflate "animal spirits" in Shenzhen - one which has put even the recent Chinese stock market bubble to shame - as follows:
It appears that the Chinese Politburo has also noticed that it finds itself straddled with yet another unsustainable housing bubble, not only in Shenzhen, but also Shanghai, and all other Tier 1 cities...
... and has taken aggressive steps to slow down this exponential surge in prices before it gets even more out of control. As a result, on Friday the local government took the following "sudden" steps to halt the exponential rise in home prices and tighten the local housing market dramatically. From Deutsche Bank:
In the evening of 25 Mar, Shenzhen issued a notice regarding the improvement of the system in the property market:
- To implement differential mortgage policies: i) for those who are not owning any properties and do not have mortgage records in the past 2 years, minimum downpayment remains changed at 30%; ii) for those who are not owning any properties and have mortgage records in the past 2 years, but have fully repaid the outstanding mortgage loan, 40% minimum downpayment will be applied
- To improve the house purchasing policies: Families with local hukou are allowed to purchase two house units at most, for non-local families, if they can provide 3 years of income tax or social security payments (vs 1 year currently), they are allowed to purchase one house unit. House purchasing rules on overseas individual and company will be strictly implemented
- To increase housing supply by different channels
- To improve the social housing system: target for new construction starts of social housing during the thirteen-fifth year period is 400k units; 350k of social housing units will be supplied to talents and eligible citizens.
- To standardize and manage market order
- To enhance the financial risk controls: “Loans for downpayments” will be proper managed. “Loans for downpayment”, crowd-funding house purchasing, bridge financing & other activities with financial leverage provided by internet financing & micro-financing companies are strictly prohibited.
Deutsche Bank's summary:
The above rules are effective immediately on 25 Mar, 2016. Also, the government said it will also increase land supply and increase development of social housing and shanty town redevelopment. During the Thirteenth Five Year period, Shenzhen government is planning to develop 400,000 units of social housing. Overall, the above tightening measures have been talked about in the market for about 2 months, but have not been introduced; hence some market participants believe that the government is unlikely to take action. Hence, the sudden introduction of the tightening measures (or the timing) is out of market expectations.
Whether these measures will be sufficient to curb further price gains remains to be seen. However, while the government is popping one bubble, it is already doing its best to reflate not just one but two more.
The first, as we reported earlier this week, is the PBOC's attempt to reflate the stock bubble once again, when earlier this week China once again loosened margin debt curbs hoping to once again get China's speculative gamblers to load up on stocks.
The second bubble reflation attempt goes back to what we reported last Sunday when we showed that Chinese car sales suffered their biggest two-month drop on record after China tried its own version of "Cash for Clunkers" in late 2015 when the government scrambled to boost car sales with its latest policy stimulus. Instead, all it did was merely pull demand forward as the chart below shows.
Did it learn its lesson? No. As Bloomberg reports, China will "appropriately" cut down payment requirement of loans for used-car purchases to promote transactions, State Council said in guidelines. Among the latest stimulus, whose full text can be found here, China proposes the following:
- China to simplify procedures for used-car transactions
- Use-car market has huge potential to develop; can also help consumption of new cars
- Auto industry is a key sector to help stabilize economic growth and boost consumption
To summarize: China is trying to gently let the air out of its second in three years housing bubble; and just in case the local population gets restless, it is providing it with not one but two alternatives: either back into stocks (where it hopes everyone has forgotten what happened just last summer), or into used autos; because China most certainly does not have a smog and pollution problem.