beyondbrics

So much for the expected Armageddon in China’s property market. Only last week there were reports that banks were being told to conduct stress tests against a scenario of a 60-per-cent drop in house prices in some cities. Investors fretted that the authorities knew something that they did not.

In fact, the surprise is how calm things remain. The government reported today that house prices in the country’s 70 biggest cities were flat in July compared to the month before, having fallen 0.1 per cent in June. No signs so far, therefore, of the sort of dramatic price drops that might lead to a slump in investment and put pressure on the banks.

That said, people have been buying far fewer houses since the government introduced a swathe of measures in April to try to cool the market. In terms of floor area sold, transactions fell by 29 per cent in July from the month before, with many buyers remaining on the sidelines.

That means there is still a stand-off between developers, who want to wait as long as they can before cutting prices, and the central government which wants to see cheaper housing costs. Any signs in the coming weeks that sales are picking up will be treated as evidence that the government is relaxing policy for the housing market – which it is under heavy pressure from other quarters as industrial production slows in other areas.

Yet, as Dragonomics argued last week, Beijing appears pretty determined to follow through in its latest property clampdown. “We tend to think that the government will prove tougher than the developers think, because it perceives high housing prices as a serious political issue, potentially affecting regime stability,” the Beijing-based consultancy said.

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