China has seen a new round of property-cooling measures, with eight second-tier cities announcing over the weekend that they were tightening rules related to home sales.
The news triggered a heavy sell-off of mainland property stocks in Hong Kong as investors fretted about the potential impact of the new regulations.
There is no doubt that the latest round of tightening measures has sent a clear signal that the central government is determined to puncture the property bubbles in smaller cities.
But will that lead to a housing market collapse? Not necessarily.
The eight cities that have rolled out new property curbs are Chongqing, Nanning, Nanchang, Changsha, Xian, Wuhan, Shijiazhuang and Guiyang.
Under the latest regulations, most of these cities have stipulated that homebuyers should hold on for at least two to five years before they can resell any newly purchased flats.
Wuhan and Xian, however, merely ordered developers to regulate their sales activity and enhance price registration with the authorities.
All the eight cities are regional hubs, and have been drawing strong buying demand from locals as well as people living in smaller cities nearby.
Taken as a group, these cities had registered housing price rally of over 10 percent in the first eight months of this year.
The new move may stifle the secondary market in the short term and force speculators out of the market.
But the policy cannot address the fundamental issue behind the surging home prices: supply shortage.
Rather than increasing land supply, bigger cities in China generally do the opposite. Local governments are cutting back on land supply for fear that auction prices may set new records, which may attract unnecessary media and public attention, jeopardizing the career prospects of officials in charge.
Meanwhile, local authorities are in fact quite happy to see a steady rise in asset prices because that’s how they can keep financing their budgets with land sales proceeds. A strong property market is also seen as supportive for economic growth.
Mainland property stocks listed in Hong Kong have surged in the last six months, with the rally led by names such as Sunac China (01918.HK) and Evergrande Group (03333.HK).
The sell-off this week can be interpreted as a technical correction.
Though investors may want to stay way from these property plays for now until the 19th Party Congress ends in late October, long-term outlook remains positive, with analysts seeing further upside as leading developers continue to gain market share.
This article appeared in the Hong Kong Economic Journal on Sept 26
Translation by Julie Zhu
[Chinese version 中文版]
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