Beijing’s Tightening Policies are Starting to Rein in House Prices

Beijing’s Tightening Policies are Starting to Rein in House Prices

The cost of housing in China rose as much as 40% last year. On the back of this strength authorities have moved to implement new controls to ease the risk of a potential housing bubble. These measures include implementing a series of monetary and regulatory policies aimed at stabilising the financial system and curbing speculative housing activity. Some of the cooling measures include raising short-term interest rates to increase the cost of credit, to make credit less attractive, implementing purchase restrictions in tier 1 and tier 2 cities, as well as requiring higher down-payments on purchases.

While some efforts have been more effective than others, recent results released by the China National Bureau of Statistics (NBS) are indicating these measures, in combination, are beginning to have the desired effects.

According to data compiled by Bloomberg, new home sales slowed to an annual rate of increase of 8% to 855 billion RMB from a year earlier. That is the smallest gain since March 2015. Moreover, as shown below, the number of cities that reported increasing house prices declined from 62 in March 2017 to 58 in April 2017, out of the 70 medium and large-sized cities monitored.

Source: National Bureau of Statistics of China

Source: National Bureau of Statistics of China

Source: Bloomberg

Although the softening in the housing market could potentially weigh on China’s economic growth, here at UGC, we believe its emerging leadership in high tech could continue to see China’s economy grow at a steady pace into the future and for it to remain one of the world’s main growth engines. Even if annual GDP growth is no longer reaching the heady levels of 10%+ per annum, as we have seen in the past, China’s recorded 6.7% GDP growth in 2016 still makes it the largest contributor to world GDP growth.

Furthermore, while the housing market may cool in the near term, there are a number of other very significant government and private infrastructure projects planned,which could also go someway to easing the effects of this possible slowdown.

Next week we’ll explore what they are and how significant they could be.

But for now the message is… don’t head for the bunkers just yet, there’s still a lot to like about China’s growth runway.

If you want to know which stocks we’re buying today that have huge upside potential, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email info@ugc.net.au to learn about our Quality, Value, Trend (QVT) investment selection methodology.

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The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment you should also consider that past performance is not a reliable indicator of future performance.

Jeanne Peng

Jeanne Peng

Financial Analyst / Paraplanner at United Global Capital
B.Bus (Eco & Fin), GDipCom
Jeanne is a Financial Analyst at UGC
Jeanne Peng