Chinese Move Out of Stocks into Real Estate in Q2

The 30 percent drop in China’s major stock exchanges from the mid-June until last week has hurt public trust of the markets, but a recent survey shows that many local investors had already turned from shares to real estate even before the crash.

A poll of local consumers by the China Household Finance and Survey Centre (CHFS) at the Southwestern University of Finance and Economic revealed rapidly dropping confidence in the share market, even before Chinese equities fell into turmoil in mid-June. The survey showed that expectations for the stock market fell by more than 22 percent from the first quarter to the second quarter of this year.

At the same time that confidence in the stock market was waning, spending in the housing market was on the way up. 37 percent more of the respondents to the survey in the second quarter indicated that they had increased their spending on housing during the period compared to respondents to the poll during January to March.

In their analysis of the study’s findings, researchers from the Survey Centre saw a movement towards more real estate investment. “In general, there are signs of capital leaving the stock markets for the housing sector, which could be another momentum to push up the housing market,” Reuters quoted the CHFS as saying.

The trends uncovered by the survey correlate closely to a rebound in housing prices and transaction volumes as recorded in official Chinese statistics in the second quarter. The rebound followed soon after the government softened restrictions on real estate speculation at the end of March by lowering downpayment levels on purchases of additional homes by families that already own at least one, and by lowering fees involved in home sales.

In April China’s National Bureau of Statistics reported the first month on month rise in home prices nationwide after a year of negative results, with prices rising by an average of 0.02 percent nationwide. The recovery continued in May with the Bureau’s figures for the month showing a 0.06 percent increase in average home prices nationwide.

Housing Market Could Rebound Further

For investors seeking to divine the future of China’s real estate market, the Centre’s survey had a few hints.

An index of sentiment on home prices included in the report showed that expectations of future price growth rose by more than 19 percent in the second quarter compare to the first three months of 2015.

Stock Market Crash is Not Armageddon

Finally, the survey has some insights into the potential impact of China’s stock market seesaw for analysts attempting to gauge how much the recent instability might affect the broader economy.

Only 8.8 percent of the households responding to the survey owned publicly traded equities. By comparison, a recent survey by personal finance website Bankrate.com shows that some 48 percent of US residents own stocks.