How could I resist with smooth talk like that 🙂
There was a housing bubble, but the government has been straight up in telling people about it, issued bubble busting policies and is purchasing/converting unfinished condo buildings.
If you want more details, read on.
The housing bubble, in which prices doubled in 3 years, was mainly confined to Shanghai and other large cities. Speculators purchased about 40% of condos. As prices rose, the government stepped in with policies to squash the fevor. They initiated a flipper 5% capital gains tax, a 5.5% capital gains tax on profits, increased down payment requirements from 20% to 30%, and raised the mortgage rate from 5% to 5.5%. The 121 policy requires developers to have 30% of their own money in the project (China Daily article). Now, with prices down about 30%, many people are upside down on their mortgages, and suing the developers! Since spring, 3000 brokerage offices closed. Houses did not see the run-up of condoes, and have not been impacted in the downturn. Concerns remain for the fallout in the banking sector. Unlike the US, many Chinese economists admit the bubble and the extent of the fallout. Three years ago, a senior economist Justin Lin warned that a RE bubble supported by bank loans may turn into a banking crisis. How’s that for straight talk?
In the island province Hainan, the government purchased half of the of the 165-million-sq-ft of unfinished condo units, and will convert them to low-income housing. This will burst the housing bubble, provide social assistance, and reduce the blight of unfinished construction.
China’s housing market cooled off somewhat after government policy which constrained financing. Still, only 30% of urban households can afford a condo. In March, the lower-end housing heated up, and the government has not tried to stop it. The policy shift is because they hope the RE industry can stimulate domestic consumption. At the same time, they remain concerned about bad loans, which tripled last year to $194million. So they are walking a tightrope in their policy. But unlike the US, they are actively managing RE pricing.
Chongqing’s property market right now is a lot like Hangzhou’s five or six years ago, only without the same kind of bubble Hangzhou went through,Hangzhou, and its close neighbor Shanghai, came under the spotlight for rampant property speculation that sent prices soaring. Beijing responded with a raft of cooling steps, including levying capital gains taxes on homes resold within a short period and higher down payment requirements. Ye thinks Chongqing will be spared a similar fate because its market took off after the lessons from Shanghai had been learned.
