Tuesday, February 2, 2010

Handling the property bubble in China?

From seeking alpha:

* China’s government, seeking to stem property speculation, told banks to raise interest rates on third mortgages and demand bigger down payments for such loans, a person with knowledge of the matter said.

* The China Banking Regulatory Commission warned lenders of the risks associated with “hot money” flowing into the property market, the person said, requesting anonymity because the agency hasn’t published the measures. Mortgage defaults in China are rising, the person said without giving figures.

* The regulator also told banks to stop granting new loans to developers found to be hoarding land or intentionally delaying property sales, and to take measures to make sure existing advances are repaid, the person said. Banks were told they should reject loan applications from people buying homes for “investment and speculation” purposes, the person said.

* An index tracking property companies traded in Shanghai fell to a nine-month low today on concern the government will tighten real-estate credit to prevent a bubble from forming.

* The government last month raised the amount of money banks are required to keep as reserves and re-imposed a sales tax on homes sold within five years of their purchase.

The result of turning off the excess is clear, but has it come too late?

* Second-hand home sales in Beijing fell almost 70 percent in January from the previous month, after the central government issued several policies aimed at curbing prices, the Shanghai Securities News reported today.

* Home sales in Shanghai fell 51 percent in January from December, the Shanghai-based newspaper said in a separate report.

The market saw the largest monthly gain in December but now we are seeing some negative fall-out in real estate. This is a very volatile and uncertain situation with world implications. If real estate falls and carries over to the real economy we will see a dollar flight to quality. This will feedback on the yuan because of the tight link to the dollar. The competitive position of China relative to the rest of Asia will decline. The problem is that it is hard to use monetary policy to create a soft landing for a bubble.

No comments: