1/9
So far regulators aren't responding to the crisis among private-sector property developers by easing their access to credit, except indirectly, by forcing banks to expand mortgages, even as home-buying interest declines.
scmp.com/business/artic… via @scmpnews
So far regulators aren't responding to the crisis among private-sector property developers by easing their access to credit, except indirectly, by forcing banks to expand mortgages, even as home-buying interest declines.
scmp.com/business/artic… via @scmpnews
2/9
Instead, the credit easing takes place mainly in the form of transfers of market share from the private sector to state-owned property developers.
This also makes it easier for the regulators to direct a larger share of new building towards low-income rental.
Instead, the credit easing takes place mainly in the form of transfers of market share from the private sector to state-owned property developers.
This also makes it easier for the regulators to direct a larger share of new building towards low-income rental.
3/9
More low-income housing would definitely be a good thing for China: cheap housing for the poor is one of the most efficient ways to rebalance income (depending on how it is funded).
But you can't ignore a problem for 10-20 years and then just hope it will somehow go away.
More low-income housing would definitely be a good thing for China: cheap housing for the poor is one of the most efficient ways to rebalance income (depending on how it is funded).
But you can't ignore a problem for 10-20 years and then just hope it will somehow go away.
4/9
The facts remain that prices of Chinese real estate are probably 2-3 times what can be economically justified, and that roughly 60% or more of the wealth of households in China consists of the value of their homes.
The facts remain that prices of Chinese real estate are probably 2-3 times what can be economically justified, and that roughly 60% or more of the wealth of households in China consists of the value of their homes.
5/9
You can't create a meaningful number of cheap apartments and hope to segregate the price impact from the rest of the market. If Chinese can buy reasonably-priced apartments, that will sharply reduce demand for similar apartments at 2-3 times the price.
You can't create a meaningful number of cheap apartments and hope to segregate the price impact from the rest of the market. If Chinese can buy reasonably-priced apartments, that will sharply reduce demand for similar apartments at 2-3 times the price.
6/9
More generally, there has never been a real estate bubble that hasn't eventually adjusted, even if authorities were able to postpone the adjustment for decades, because at some point rising real-estate prices themselves undermine the economy.
More generally, there has never been a real estate bubble that hasn't eventually adjusted, even if authorities were able to postpone the adjustment for decades, because at some point rising real-estate prices themselves undermine the economy.
7/9
One way or another, in other words, real-estate prices will adjust downwards in China, and this can happen quickly, as occurs in the US, or (more likely) slowly, as occurred in Japan. Either way, it will erase large amounts of household wealth and will undermine the banks.
One way or another, in other words, real-estate prices will adjust downwards in China, and this can happen quickly, as occurs in the US, or (more likely) slowly, as occurred in Japan. Either way, it will erase large amounts of household wealth and will undermine the banks.
8/9
Obviously I am not the only person to know this. From what I understand, regulators in Beijing have long had a systematic understanding of the real-estate problem in China, which is why they are so worried and were so determined in the past two years to clamp down.
Obviously I am not the only person to know this. From what I understand, regulators in Beijing have long had a systematic understanding of the real-estate problem in China, which is why they are so worried and were so determined in the past two years to clamp down.
9/9
Unfortunately, however, they don't yet seem to have a systematic understanding of the alternatives, or perhaps they don't yet have the ability politically to recognize the cost. This is probably why there still remains so little clarity on the ultimate adjustment process.
Unfortunately, however, they don't yet seem to have a systematic understanding of the alternatives, or perhaps they don't yet have the ability politically to recognize the cost. This is probably why there still remains so little clarity on the ultimate adjustment process.
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