Housing market victory?

The housing market is everyone's favorite bubble candidate in China, yet according to the China Real Estate Enterprises Management Association (CREMA), a government think tank, the tide may finally have turned. In August, its vice chairman said that CREMA had advised the State Council many times not to issue new policies constraining the property market as investment has already fallen too far.

The last few months do seem to suggest that the property market has indeed turned a corner. Average house price increases in China's 70 largest cities reached a zenith of 12.8 percent in April this year, a record monthly increase, yet has since decreased for three consecutive months, falling to 12.4 percent in May, 11.4 percent in June, and finally down to 10.3 percent in July (see Chart 4).

It's no coincidence that the implementation of government measures aimed at constraining soaring housing prices dated from April this year. These measures included cutting the discount offered on interest rates to all home buyers, close scrutiny of the financing of developers, and requirements for larger down payments for loans issued to second and third home buyers. In the latest round of measures, in August it emerged that the China Banking Regulatory Commission has suggested to commercial banks in Shanghai, Beijing, Shenzhen and Hangzhou to cease providing housing loans to third home buyers altogether.

The government is not stopping there, however. In August, it was reported that China's Ministry of Land and Resources had in late 2009 launched a nationwide inspection on land hoarding which identified a black list of 1,457 land hoarding cases covering a total area of 100 million square meters. Landowners on the black list included property developers and local government investment companies, as well as government agencies such as telecom and postal bureaus. The ministry subsequently submitted the list to banking and securities regulators for risk examination.

All this would seem to indicate that, notwithstanding the ceaseless talk of a bubble in China's housing market that we have been subjected to for months now, China's housing market is in rather safe hands. Yet while housing prices are not increasing at the moment, the area of new housing is. The China Index Academy reported in August that, of the 30 cities it monitors, 18 experienced an increase in the area of housing in July. One of these was Beijing, where the growth rate of the area of homes sold increased by 22 percent in July.

The profits of China's major property developers, moreover, are also still increasing handsomely. China Vanke, for example, recorded record sales in the first half of 2010, and the Guangzhou-based Evergrande Real Estate reported record contract sales of 5.08 billion yuan ($749.26 million) in July, an increase of 172 percent year on year. So while the authorities may for the time being have succeeded in clamping down on rising housing prices and speculation, China's housing market is still red hot and is not going to completely lose its affinity with bubbles anytime too soon.