China: First tier home prices reducing speed - ING

China’s recent measures of limiting the structure of personal loans has moved first tier home price growth even lower and there should be no bubble bursting, according to Iris Pang, Economist at ING.

Key Quotes

“Home prices have gone down, and it is obvious that first tier home price growth has been lower than lower tier cities. New home prices are up 1.55%YoY but down 0.2%MoM in first-tier cities. There was still high home price growth in second and third-tier cities of 5.82%YoY and 7.53%YoY.”

“It is well known that individuals who could not afford down payments had looked for very long-term personal loans to fulfil down payment needs. Recently, the regulator has asked banks to limit the maturity of personal loans (some of which were for 20 years) to just a few years, and loan amounts from several million down to about one-tenth of that. Though there are no formal announcements of such restrictions, banks are asking borrowers to show invoices as proof of their use of borrowed funds so that banks can tell regulators that those loans have not been used as down payments. (Invoices, as a commodity in their own right, could be very expensive nowadays…)”

“The commencement of rental market policies could push up prices of good school district properties, in complete contrast to the policy intent. This is especially the case for first tier cities, which have strong self-use demand.”

“All in all, home prices are likely to come down but only slowly in prime locations, but transactions could be even thinner.”

“A more concrete housing policy could be announced after the 19th Congress.”