Monday, August 20, 2012

Local authorities "look the other way" as China's housing market heats up again

Beijing is once again reiterating to the local governments in China to stop trying to loosen the various housing market restrictions implemented across the nation last year.
Bloomberg: - The central government asked local administrations to reverse any relaxation of housing curbs, CCTV said, citing inspection teams from the country’s State Council.
But municipal governments don't want the party to stop - this booming housing market has just been to lucrative for everyone. With developers and government officials (and even banks) often in cozy relationships, it's hard for the central government to cap price appreciation even when they know it's not going to end well. Home prices have in fact been on the rise this year.

Source: ISI Group

Property developers' share prices reflect this improvement in housing prices. Even though it's down materially from the peak, the property index is still up almost 9% YTD, while the overall equity index is down. Anecdotal evidence suggests that some municipal government officials are rewarded quite well for "making things happen". Beijing has their work cut out for them.

Shanghai Stock Exchange Property Index (white) and  Shanghai Stock Exchange overall index (green)
(source: Bloomberg)
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