Last Friday (April 30), Xi Jinping presided over a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee, which used the phrase “houses are for living, not for speculation” and mentioned for the first time “preventing speculation on housing prices in the name of school district houses, etc.”.
The Chinese financial media “Gronghui” reported on May 4 that the issue of housing is not for speculation has been mentioned in the past few years, but it is the first time that school district house speculation is named, which indicates that China’s school district house price bubble is large.
According to the report, in every round of China’s property market, whether it is the first or second line, or the third or fourth line, the rise of school district housing is basically the leader, because it is tied to degree resources, scarcity and resource mismatch phenomenon is more prominent. Because of this, whether it’s ordinary just need, or speculators, basically have been expected to school district housing will always rise, the potential for value preservation and appreciation is great. As a result, a large number of speculators have targeted their speculation on school district houses, causing their prices to keep rising.
In the first quarter of last year, under the impact of the CCP virus epidemic, the CCP central bank relaxed its monetary policy, and under the effect of the flooding, house prices in first and second-tier cities have also risen a lot so far last year, especially in Shenzhen.
Learn from history, 10 times the crisis 9 times the house, there is no forever big rise in housing prices. When the monetary tide fades, the high prices of housing will become a source of crisis.
In December last year, Guo Shuqing, chairman of the Communist Party of China’s Banking and Insurance Regulatory Commission, issued an article saying that real estate is the biggest gray rhinoceros of China’s financial risks at this stage. On the 31st of the same month, the CCP central bank gave banks a red line for mortgage ratio.
On February 8 this year, Shenzhen introduced the guiding price of second-hand houses, and the turnover of Shenzhen property market dropped abruptly.
On March 2, Guo Shuqing spoke out again, the core problem of real estate is the bubble is relatively large, financial bubble tendency is relatively strong, is the biggest gray rhinoceros in the financial system, many people buy houses not to live, but for investment or speculation, which is very dangerous.
Immediately after, within two months, at least 10 cities in China issued house price control policies again.
On April 30, the Politburo meeting chaired by Xi Jinping named the school district house speculation on housing prices.
China’s real estate has been called the “hardest bubble” in the country’s economy by Ren Zeping, chief economist at Soochow Securities, who estimates that the market value of China’s housing stock reached 321 trillion yuan in 2018, or 3.6 times the GDP.
Compared with developed countries, the ratio of housing market value to GDP in 2018 was 356% in China, higher than 126% in the United States, 208% in Japan, 238% in Germany, 320% in the United Kingdom and 341% in France, Ren said.
According to Ren Zeping, the fundamental problem of China’s real estate is the mismatch between people and land and monetary over-issuance; monetary over-issuance has brought about serious asset price bubbles as well as financial risks.
The Wall Street Journal also reported that China’s property market bubble has now surpassed that of the U.S. property market in the first decade of this century. According to Goldman Sachs data, China’s residential and developer inventory totaled $52 trillion in 2019, twice the size of the U.S. residential market, and more than the entire U.S. bond market.
Chen Zhiyu, who works for a U.S. retail company, said real estate has kidnapped China’s economy, and as a result, the government is afraid to push for a big drop in home prices.
Prices in some Chinese cities have reached levels that rival some of the most expensive locations in the world. The average home price in China in 2018 was 9.3 times the per capita income, compared with 8.4 times in San Francisco, according to the Chinese Academy of Social Sciences.
Residents of China’s cities and towns have pretty much bet everything on their homes. According to a report by China Guangfa Bank and Southwest University of Finance and Economics, nearly 78 percent of the existing wealth of China’s urban residents is tethered to residential real estate, while in the U.S., property accounts for 35 percent of household wealth and more is invested in stocks and retirement funds.
According to the report, Xi Jinping has named the school district housing, and it seems that the wolf is really coming.
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