Thursday, April 14, 2011

This would be quite amazing, if it’s true…

Beijing March New House Prices Plunge 26.7% M/M

Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission. Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009. Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

Posted by mark wadsworth @ 04:06 PM (1918 views)
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11 thoughts on “This would be quite amazing, if it’s true…

  • sibley's b'stard child says:

    Dec 10 +0.2%
    Jan 11 +0.8%
    Feb 11 +0.4%
    Mar 11 -26.7%

    That can’t be right, surely?

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  • One observation from that, which I’d like to see in this country – an index which shows the average price per square meter in each region (even down to postcode level). That might wake people up a little as to what they’re really paying for. Utility value. anyone?

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  • Monthly stats for anything are volatile; so who knows.

    The Chinese government has indeed been cracking down on property speculation, but only in some cities. Beijing was included in the crackdown (as per the article). Interest rates have risen a bit. Minimum deposit requirements on first homes were imposed starting at 30% last September, rising to 60% in January. Deposit requirements on second homes were raised from 40% to 50% last April. Registered locals can only buy two properties in Beijing; non-locals can only buy one property. There’s a 5.5% stamp duty imposed if the property is re-sold within five years. There’s also talk of an annual property tax (0.5% to 1%), but only in Shanghai and Chongqing, not Beijing.

    Those are all reasonable measures. However, this being China, they’ve also introduced another horrendous market-distorting policy. Local governments must now set property price “targets”, or price controls. These targets are only supposed to come into force at the end of March, so I don’t know if they’d already be baked into the March figures, but the change is certainly the most significant. For the most part, developers will just build more small and cheap properties. Existing high-end developments will be sold slowly over time, so that the average price remains reasonable.

    There are lots of other tricks to get round price controls. Charging separately for fixtures & fittings is the simplest way to side-step the rules (“you can buy the apartment for the capped price of å…ƒ 300,000, and we’ll install the kitchen for an extra å…ƒ100,000” – that’s your 25% drop). Another possibility is that developers will cut their losses on high-end properties and sell them off at the capped price, but won’t build any new ones. Therefore this would just be a short, sharp drop in prices. Finally, the developers can just hold and wait for the rules to change again. Developers benefit from China’s subsidised low interest rates for businesses; so unlike western companies they aren’t as concerned about freeing up capital.

    Finally, it could be a genuine slowdown. Goldman Sachs are winding down their commodity trades; many other signs point to a slowdown. The high oil price could easily choke off the boom.

    China’s demographics are horribly skewed. There are 328m people aged 15-30, but only 243m aged 0-15 (2009 figures). That’s a 26% drop, courtesy of the one-child policy.

    I’m not a China-basher. They’ve had a great run, and they’ll be fine in the long-term. However we’re quite possibly at a point in their economic progress where development slows down and begins to take on a more western (i.e. slower) characteristic. Slowdowns are never painless and I expect there will be much pain to come in their property market.

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  • drewster

    The PBoC announced today that M2 Money supply has accelerated to 16.6% YoY. No wonder they need to cool it.

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  • Dill,

    Thanks, I missed that one. For a comparison here’s the USA’s year-on-year change in M2:

    There was actually quite a spike in late 2008 / early 2009, suggesting that M2 is a lagging indicator. Although frankly based on that graph I’m not sure it’s a very good indicator of anything.

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  • @5

    It’s all a matter of context. the US was spilling in to try and retain demand (they’d already commenced QE1 in order to manipulate a response to crashing equity markets). China has been affected by a surge in foreign demand, which has acted to assist expansion. The former has probably failed and the latter has possibly gone too far. Methinks there will be some high level ‘coordination’ chats in flow – as they have been for some time. Protectionism is probably a big buzzword in the back rooms of late.

    Either way, there’s a lot of adjusting to do.

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  • fallingbuzzard says:

    @1, They moved the index from an average of asking prices to completion prices, Rightmove to and Registry sort of shift, hence the 30% fall on absolute prices

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  • fallingbuzzard says:

    @7, Land Registry

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  • fb,

    And the fall in volumes, 50.9% yoy / 41.5% mom? You can’t track sales volumes in an index of asking prices – or was it an index of how many properties were newly advertised?

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  • fallingbuzzard says:

    I don’t know where that specific figure comes from but I do think its the volume of new properties launched to the market in March since that is the data that the Housing Commission has

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  • @ 4,5 & 6. re China’s M2. It’s worth noting though that there’s a major counter to increased money supply (which stems in large part from current- and capital-account surpluses and foreign exchange holdings) in China. This is ‘sterlisation’, which aims to dampen inflation. It accordingly freezes about 25% of said money supply by means of (a) a high required reserve ratio (RRR) – this is the % of commercial bank money (18.5% – or it was a few months ago) that cannot be loaned out (it’s held in accounts at the central bank), (b) anti-QE, i.e. selling government bonds held by the central bank (except the government has little or no debt to the public to sell off, so it created “Central Bank Bills” which commercial banks buy (supposedly voluntarily)) – the money they pay is then locked up in the PBC’s accounts, and (c) credit quotas/ceilings – extra commercial bank money in addition to RRR which has to be held as reserves and cannot be used to make loans. That 25% of frozen money is made up of said 18.5% RRR, 5-6% Central Bank Bills and 2-3% quotas/ceilings or bank reserves.

    These instruments appear to be calibrated to keep “effective” M2 relatively constant.

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