- Government efforts to cool the Chinese housing market are not working. Despite an intensifying clampdown, more households expect prices to continue rising in the coming months, particularly in the richest cities that are the focus of the government’s campaign.
- Consumer sentiment towards real estate purchases has also spiked, probably in response to widespread coverage of the policy tightening.
- The clampdown is yet to meaningfully impact credit flows to households. This could change, although the monetary authority’s most recent comments on the mortgage market show the limits to the government’s appetite for reining in the real estate market.
The latest data from FTCR show a sharp rise in the number of households saying they believe prices will continue to rise in the coming six months, despite an intensifying central and local government crackdown on bubbling property markets.
Policy moves may have cooled the extraordinary gains seen last year, but house prices have picked up again since the start of 2017 as the clampdown fuels consumer demand for property (see chart).
The results of our March FTCR China Consumer Index argue for a tougher approach to reining in speculation, but also highlight the importance of the housing market in shoring up household sentiment and supporting economic growth.
Although the authorities are tightening further, the central government has signalled there are limits to its appetite for clamping down on the housing market.
Consumers scramble as government tightens
Our latest consumer sentiment survey found a sharp increase in respondents who said now is a good time to buy a house to live in, with the sub-index rising to a record 56.8 (see chart). Another sub-index asking if now is a good time to buy for investment purposes remained just below the 50 mark, which separates improving from deteriorating sentiment, although respondents in first-tier cities were positive overall.
The proportion of respondents saying they expect house prices to keep rising in the coming six months reached 68.4 per cent in March, the highest since February 2014 (see chart). In first-tier cities, where government tightening efforts have been concentrated, 77.2 per cent of respondents anticipated higher house prices.
Among all respondents, 17.2 per cent expect prices to increase by more than 10 per cent, versus 14.1 per cent in November, a month after local governments began clamping down on their housing markets in earnest.
Under its new mantra that “a house is for living in, not for speculating with”, the leadership has pledged to bring housing prices under control this year. Despite its tough talk, the results of this campaign have been inconclusive, with tightening so far having little impact on mortgage lending.
Chinese banks have lent out a net Rmb2.5tn in medium-to-long-term household loans — largely mortgages — since local governments began tightening administrative controls in October, nearly 70 per cent more than the same period last year (see chart).
The most recent FTCR Real Estate Index found 49.5 per cent of first-time buyers were able to get a discount on their mortgage rates in February, according to developers, versus just 2.3 per cent in September 2014, the month before the government began loosening administrative curbs on the housing market to shore up economic growth.
More tightening, but with limits
Local governments have clamped down further on the market in recent weeks, including raising minimum downpayments for some purchasers to as much as 80 per cent. This latest round of tightening suggests increased urgency for local authorities to fall in with the centre’s edict on “curbing asset bubbles”. Nearly 60 per cent of loan officers surveyed by FTCR in January said they expect mortgage lending to slow this year.
However, we believe the central government is only willing to go so far to rein in a sector that has proven crucial to meeting growth targets. Zhou Xiaochuan, governor of the People’s Bank of China, said at a recent press conference that mortgage lending is still expected to grow “relatively fast” this year, arguing that a mortgage loan does not just buy a house but passes along a large industrial chain.
Our latest consumer index found household sentiment towards the economy at its strongest level in four years. With consumer sentiment toward durable goods purchases and financial investments weaker relative to February, we believe these latest results underscore the increasing importance of a buoyant housing market in shoring up vast swathes of the Chinese economy.
|FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.|