For over a fortnight now, Chinese policymakers have tightened mortgage norms, and directed governments in four booming cities to introduce a property tax.
“The enforcement and effectiveness of such measures is debatable,” says Standard Chartered analyst Feng Zhi Wei. Nevertheless, he adds, local governments have received “a clear signal” of Beijing’s determination to halt price escalation and eliminate speculation to stabilize the property market.
The tightening measures “have quickly reversed real estate market sentiment,” and there are signs that in many cities, what used to be a ‘sellers’ market’ has turned into a ‘buyers’ market’," notes Barclays Capital economist Wensheng Peng.
The prevailing mindset holds that "capital inflows are good, and outflows are bad."
One of the problems, he adds, is that in China, there “isn’t any incentive — from the regulator to the banks to the borrowers — to recognize a loan that isn’t paying off.” And since a loan isn’t "bad" until the borrower insists on it being repaid, it’s easy to continue to pretend it’s all good.
Patrick Chovanec, associate professor at Tsinghua University’s School of Economics and Management in Beijing, said, “These efforts don’t change the dynamics that drive the bubble: the large source of demand, driven by people buying multiple residential units and holding onto them as a store of value."
DNA reports that he added an extra policy dilemma in that while a bursting of the property bubble would translate into lost savings for the Chinese middle class, allowing the bubble to fester was just as dangerous. “In that sense, it’s a case of ‘damned if you do, damned if you don’t,’ ” he adds.