In China you should always look out for unexpected curbs
Although June saw China’s home buyers returning to the market in the largest numbers several months, enthusiasm among stock investors for China’s real estate developers already appears to be headed downhill.
June’s property data from the National Bureau of Statistics on Wednesday showed prices for homes in China rising 0.02% month-over-month, the first increase since September 2011. The volume of transactions also rose in June, after having fallen for several months. Reasons for the recent real estate rebound include lowering of interest rates in May and June, as well as a widely held belief that the government would soon relax property market controls in the face of slowing economic growth.
However, this rebound in prices and sales is being seen as bad news for developers, as many analysts take this as a sign that the government now will be unlikely to release its real estate market controls in the near future.
Indeed, following the release of the Bureau’s statistics on Wednesday, the country’s property authorities were quick to respond. On Thursday, China’s Ministry of Land Resources (MLR) and the Ministry of Housing and Urban-Rural Development issued a joint statement reaffirming the government’s commitment to keeping the lid on housing prices. According to the statement, “Local authorities must strictly implement the nation’s property control policies. They should not relax the control and relevant requirements unauthorized.”
On Wednesday, even before the government’s statement, a sub-index of property shares on the Shanghai Stock Exchange was down more than 5 percent at one point and has since continued to underperform the overall market.
Before Wednesday’s figures confirmed the real estate market rebound, the property index had risen 17 percent during 2012. This was especially impressive considering that the overall market index has been down.
In an interview with Reuters, William Fong, a fund manager with Baring Asset Management, said, “If strong sales continue for another six months it is very likely that the government faces a dilemma again.” He indicated that it was possible that if prices continue to rise that, rather than relaxing restrictions, the government may have to come in with another round of market curbs.
In the meantime, China’s homebuyers continue to snap up houses, and there is still no translation for “irrational exuberance” in my Chinese-English dictionary.
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