Back on board the China property market rollercoaster as we ride into 2011. Before the last stop we watch a sub-index of property stocks on the Shanghai Composite Index slump 28% at the end of last year on the promise of new property taxes to curb growth. Now as it seems unlikely the taxes will ever come to bear, despite revelations that prices grew much faster last year than previously thought, we can watch the same index climbing once again having growth 8.4% last week.
The government has unveiled its latest policy initiative to cool the market; tightening regulations on foreign purchases.
Last year we see that foreigners invested 20.1 billion USD in Chinese property, a whopping 48% growth compared to 2009, but a drop in the 410 billion USD ocean of total property investment in China.
It does seem like the rollercoaster is a bit unstoppable at the moment. The central government may want to cool the market, but provincial governments rely on land sales for revenues, the state owned banks are fuelling growth on financing loans for property and land purchases, and state owned developers are buying up land as well.
Passing any law to hurt the market does look difficult, especially because no one wants to cop the blame for bursting what looks like one of the largest real estate bubble’s the world has ever seen.
So, who cares if it gets harder for a few foreigners to buy if it takes some of the pressure out of the market?
You guessed it, the government, right now no government in the world wants to hinder foreign investment, even China as the next wave of emerging markets — the CIVETS, Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa — take over from the BRIC nations as the fastest growing economies in the world.
Because of this, it is just as likely that next to nothing will change in the laws regarding foreign purchases, leaving the status quo rollercoaster to rock and roll onwards.
Meanwhile we sit here wondering just how hot the Chinese property market is, biting our nails at the prospect it is likely much bigger than the US bubble that’s going pop crippled the global economy.
All that is true, the bubble is bigger, in fact according to recent reports the market is much hotter than we ever thought.
According to the China Real-Estate Index System, compiled by Chinaâ€™s largest online real-estate brokerage SouFun, prices for residential properties rose 47.1% in Hangzhou, 37.9% in Chongqing and 37.1% in Beijing. Official figures from Chinaâ€™s National Bureau of Statistics show prices up less than 10% in these cities in the first 11 months of the year
The gap between official indices and reality would seem to be confirmed by the reality itself. We know that land sales were soaring, but prices were only growing in high single digits. We also know that state entities in Hong Kong would combine to force up the prices of land at auction, in order to accelerate price growth on the secondary market, something that could easily have been replicated on the mainland.
Maybe we shouldn’t be quite so scared though. It is true; the Chinese banking system is in much better shape than its US counterpart. When the US crash crippled the world it was because the system had been allowed to eat away at itself for so long that mortgage lending became almost completely unregulated, and all parties became way too exposed to sub-prime mortgage lending. The Chinese banking system is still heavily regulated, and reserves are healthy. Chinese economic growth and the population are huge, not to mention the latter growing rapidly in numbers and affluence. There are numerous reasons to be hopeful that the Chinese bubble will not affect the world.