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China steps up battle against property bubble

Big Chinese cities have launched a new round of lending curbs and purchase restrictions in an effort to cool overheated property markets, as official media warn that some have veered towards a bubble. 

Sky-high prices in cities including Beijing, Shanghai, and Shenzhen are stoking anger, even among relatively well-off professionals.

Meanwhile, controlling financial risk has emerged as the dominant economic policy theme for 2017. At the conclusion of the annual session of China’s rubber-stamp parliament last week, the government pledged to “contain excessive home price rises in hot markets”.

On Zhihu, a Chinese crowdsourced question-and-answer platform, a thread about Beijing house prices has attracted 17.8m page views. In the top-ranked post, a graduate of the prestigious Peking University describes the reason for his painful decision to leave the city: despite a promising job at a top-ranked research institute, he could not afford a home for his family. 

“Before and after leaving Beijing, I cried twice,” he wrote. “The first time was when I sent my resignation letter to my boss. That 80-something academic was always so kind to me. When I told him I was leaving, he was very surprised.”

In recent days, authorities in Beijing and four provincial capitals — Guangzhou, Zhengzhou, Changsha, and Shijiazhuang — have all introduced new property tightening measures. They include higher downpayment requirements on second homes and restrictions on purchases of second or third homes. The moves add to restrictions rolled out in other capitals this month, including Nanjing, Qingdao, and Sanya in the resort island of Hainan. 

Nationally, home prices were 11.8 per cent higher in February than a year earlier, following 12.2 per cent growth in January, according to Reuters’ calculations based on the government’s 70-city survey. But other indicators suggest the previous round of property tightening measures, which began last autumn, has not had the desired impact. 

Property investment grew at its fastest pace in two years in January and February at an annual rate 8.9 per cent, while sales accelerated to 25.1 per cent growth in floor space terms. China’s statistics bureau combines January and February to eliminate seasonal distortions caused by the lunar new year holiday. 

“There is no doubt that in some cities the property market’s ‘high fever’ hasn’t subsided, and there are even signs of an evolution towards a bubble,” read a Monday analysis in Financial News, a newspaper owned by the People’s Bank of China, the central bank. “The hidden risks and potential damage cannot be ignored.”

Beijing policymakers are attempting to strike a balance between curbing financial risk and social anger, and avoiding a sharp slowdown in construction activity and related commodity demand, which would threaten the broader economy.

Even as big cities showed signs of overheating, the strong property market in 2016 was crucial in enabling the government’s gross domestic product growth target to be met. Property was especially important in sustaining growth in fixed-asset investment at a time when manufacturers cut back spending on new machinery and buildings.

“The sustainability of the property market rebound, which mainly depends on future mortgage policies, is unclear,” Gao Ting, head of China strategy at UBS Securities in Hong Kong, wrote on Monday. “We think the trend of the property market will remain uncertain and may bring downside risks to economic growth in the second half.”

Additional reporting by Ma Nan

Twitter: @gabewildau

Via FT