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[*] posted on 24-3-2018 at 08:05

Data on the Chinese property market released recently showed there is a boom in the market almost across the board. The strong performance in the property market will allow the government to meet its annual growth target set at the beginning of the year and also mitigates the risks of many local government financing vehicles (LGFVs) and delays the risk exposure of China's banking and financial system.

Two indicators - property sales and financing - are worth making particular note of.

Property sales have been brisk. Commercial property sales by floor area grew 25.5 percent year-on-year in the January-August period while residential property sales by floor area were up 25.6 percent. The value of commercial property sales rose 38.7 percent in the same period while the value of residential property sold surged 40.1 percent. The data show that sales of commercial property by floor area and the total value of residential property sales in the first eight months have almost reached last year's annual level. Meanwhile http://www.authenticyankeesprostore.com/yankees-brett-gardner-jersey/ , more than 90 percent of residential property sales by value were from homes under construction. This situation shows that China's property sales have hit new highs. It also indicates that Chinese developers are busy selling housing under construction and that reducing inventories is not a concern at all.

Currently, the gap in the pace of growth between residential sales by floor area and by value has been narrowing, but the gap is still large. This means that property prices in many cities are still rising rapidly as evidenced by the data released Monday which showed 64 out of 70 major cities tracked by the National Bureau of Statistics (NBS) posted home price gains in August, compared with 51 in July. It also indicates that many residential property projects, which are by no means luxury developments http://www.authenticyankeesprostore.com/yankees-bernie-williams-jersey/ , are priced as if they were. Take Beijing, for example. The price of many developments has risen above 100,000 yuan ($14,991) per square meter. With these high costs, developers are turning residential properties into pure investment products http://www.authenticyankeesprostore.com/yankees-babe-ruth-jersey/ , which shuts out a wealth of potential buyers. If this situation continues, improving people's living condition will remain a distant prospect.

Additionally, a large amount of funds are being put into the property market. The aggregate financing for property developments reached 9.16 trillion yuan in the first eight months, up 14.8 percent year-on-year and 3 percentage points faster than the growth of M2, a broad-based measure of money supply. Among these http://www.authenticyankeesprostore.com/yankees-austin-romine-jersey/ , individual mortgage loans stood at 1.54 trillion yuan, an increase of 52.2 percent from a year ago. Data showed medium- and long-term mortgage loans have grown faster in the last two months.

The surge of 52.2 percent in mortgage loans is largely driven by a loose monetary policy. A flurry of government stimulus measures such as preferential credit policy and interest cuts have lured many investors to the property market.

These data deserve attention. The total amount of funds moving into the property market has reached more than 9 trillion yuan in January-August, compared with the increase of 10.3 trillion yuan in the total social financing (TSF), a broader measure of credit and liquidity in the economy, in the first seven months.

While the data adds evidence to the excessive liquidity in China's financial market http://www.authenticyankeesprostore.com/yankees-aroldis-chapman-jersey/ , the issue of whether the liquid capital only circulates within the financial system or enters the real economy remains debatable. This is because the property market has attributes which can be categorized as an investment product or a consumer product (the NBS defines it as an investment product). If the property is categorized as an investment, a large amount of capital that flows into the property market and pushes up home prices means the liquidity does not flow to the real economy and its consequence will be serious. If property is categorized as a consumer product, the capital that flows to the real estate market will be counted as flowing to the real economy. China's property market should be considered an investment-oriented market as common consumers cannot afford high-priced properties, especially in first-tier cities.

While domestic buyers has rushed to the market by borrowing loans, the market faces enormous risks as the government and commercial banks remains numb to the increase in leverages http://www.authenticyankeesprostore.com/yankees-andy-pettitte-jersey/ , with some banks even misinterpreting these leverages as quality assets. Further, city-differentiated policies to regulate the property market will allow the increase in leverages to spread from one city to another, and risks bursting the property bubble in all cities.

China's property market is currently divorced from the life of the common people. Although soaring property prices have created an economic boom and eased the risks of LGFVs in the short term, the risks will only become more hazardous if the boom is pushed up by the increase in leverages or excessive credit expansion. Chinese policymakers should make a move to prevent such a worst scenario from turning into a reality.

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