Sun, May 28, 2017 page15

• Chinese buying in remote cities sign of a bubble

  • By Emma Dong and Miao Han / Bloomberg
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  When a 59-year-old accountant in Shanghai wanted to invest for her looming retirement, she bought two cheap apartments — on the other side of the country.

  “When friends told me about a chance to buy properties in Xishuangbanna, I thought: ‘Why not?”’ said Yuan Junxi, talking of the steamy, subtropical region in Yunnan Province, bordering Laos and Myanmar. “No buying limits; cheap, easy mortgages; and maybe property prices will jump over there too.”

  Buyers such as Yuan, a mother of one who borrowed to help fund her purchases of 280,000 yuan (US$40,842) each in the city of Jinghong last month, are spreading the risk of bubbles to ever-smaller places in China’s provinces, after a crackdown by the central government took some of the froth out of the property market over the past 14 months.

  The spreading demand among ordinary citizens for homes in smaller cities underscores the enormity of the task ahead for China’s leaders: rein in the market without tanking the economy.

  The risk that China could fail to keep that tricky balance is at the core of the long-term financial concerns for China that triggered a downgrade by Moody’s Investors Service on Wednesday.

  “The current surge in sales in third and fourth-tier cities is fueled largely by expectations of a future price rally, not by asset yields, and that’s exactly a sign of a bubble,” Hong Kong-based Nomura Holdings Inc chief China economist Zhao Yang (趙揚) said.

  The “biggest risk” is a downturn in those cities triggering an abrupt national sales slump, Zhao said.

  When Beijing resident Fay Qu, 34, found herself locked out of local property purchases because of the city’s curbs, she and her friends instead together late last year bought a 1 million yuan apartment in the third-tier coastal city of Zhongshan in Guangdong Province — 2,250km away — beating restrictions that the local authorities rolled out in March.

  “We were lucky,” she said. “It’s much better than depositing money in the bank.”

  Cooling measures pulled down price gains in cities such as Beijing, where the restrictions are harshest, Shanghai, and Shenzhen.

  That is not the case in smaller places such as Tangshan, best known for a 1976 earthquake, or Bengbu, a city in poorer Anhui Province. Both had a 2.2 percent month-on-month gain last month, the biggest increase since at least 2011.

  In Xishuangbanna’s Jinghong — too small to feature in the Chinese National Bureau of Statistics’ most-watched releases — prices rose 26 percent in the 12 months ended March, according to city data cited by private property Web site Ynhouse.com.

  Strength in property markets in tier-three and tier-four cities is partly offsetting a worsening in bigger cities, Hong Kong-based Citigroup Inc analyst Oscar Choi (蔡金強) wrote in a note.

  A Bloomberg Intelligence index tracking the shares of 22 large Chinese developers is up 37 percent this year; it fell as much as 1.9 percent on Friday.

  To rein in a surge in prices, China’s leaders adopted a targeted strategy to cool buyer demand in specific hubs, instead of a one-size-fits-all approach. That meant urging stricter restrictions in cities such as Beijing and Shenzhen, which had seen the biggest growth, while leaving local governments in smaller centers to take the steam out of markets as they saw fit.

  The trick, as cooling measures spread, is to avoid weighing too heavily on the nation’s economic expansion.

  National home sales growth last month slowed to the weakest annual pace in more than two years. Last year, sales swung month by month as curbs intensified and buyers channeled money into new cities or found ways to bypass restrictions.

  Analysts at JPMorgan Chase & Co earlier this month forecast falling sales and weaker growth in real-estate investment over the rest of the year, with the government likely to succeed in keeping national housing prices “stable.”

  Bloomberg Intelligence economists Fielding Chen (陳世淵) and Tom Orlik estimated that a likely slowdown in construction would shave 0.8 percentage points off the nation’s economic growth rate.

  If a slowdown bites, authorities might find themselves forced to choose between hitting the 6.5 percent growth target and letting the restrictions on property ease.

  For now, local authorities have boosted down payment requirements, restricted purchases by nonresidents and capped the number of dwellings that a household can own.

  While Chinese President Xi Jinping (習近平) and his officials keep repeating the slogan that: “Houses are built to be inhabited, not for speculation,” the popular faith in real estate as an investment is undimmed.
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