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Boosting measure doesn't indicate loosening policy on housing sector
By JPMorgan Research |
September 21, 2012, Friday
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THE National Bureau of Statistics on Tuesday released 70-city house price index for August. Compared to the previous month, new home prices declined in 20 cities, stayed flat in 14 cities and increased in 36 cities.
This was the second time since July 2011 that more than half of cities observed month-on-month house price increase. According to the data released earlier this month by Soufun, a real estate statistics provider, national house prices increased by 0.24 percent month on month in August, compared to an increase of 0.33 percent month on month in July.
The recovery in housing market activity has benefited from recent policy easing. The two interest rate cuts in June and July, as well as stable liquidity in the financial market have an indirect but positive impact on the housing market. Supportive measures for genuine-end demand, especially first home-buyers and buyers of small apartments, also played a role.
Public investment, especially infrastructure investment, has been an important component of policy easing. As the funding capacity of local government is facing increasing constraints due to slowdown in fiscal revenues and land sales, there has been some expectation that property tightening measures will have to be eased to support economic growth.
We do not think it will happen. In fact, the central government has reiterated its intension to continue property tightening, in particular to maintain restrictions on speculative demand. Given the high priority of property tightening in the economic agenda and political agenda, a rebound in house prices is the last thing the central government wants to see. More broadly, this time the central government will not easily give up its efforts in economic restructuring to temporarily boost economic growth.
Tightening to continue
Therefore, we expect that property tightening will continue. To mitigate the conflict between local governments' funding capacity and public investment, the scale of fiscal easing tends to be moderate. That is, fiscal easing will be within this year's budget limits without introducing an additional stimulus package. Public investment will also be supplemented by monetary easing and tax cuts that aim to increase corporate profits and to boost private investment.
Overall, the housing market is likely to gradually bottom out through the second half. However, as new supply will continue to come in, the market is still in moderate oversupply condition. Hence, it is unlikely to observe a swift turnaround in the housing market as in 2009. While transaction volume and house prices may stabilize in the coming months, real estate investment will continue on the soft side for the rest of the year.
The article is a summary of a research note issued on September 19. The opinions expressed are their own.
This was the second time since July 2011 that more than half of cities observed month-on-month house price increase. According to the data released earlier this month by Soufun, a real estate statistics provider, national house prices increased by 0.24 percent month on month in August, compared to an increase of 0.33 percent month on month in July.
The recovery in housing market activity has benefited from recent policy easing. The two interest rate cuts in June and July, as well as stable liquidity in the financial market have an indirect but positive impact on the housing market. Supportive measures for genuine-end demand, especially first home-buyers and buyers of small apartments, also played a role.
Public investment, especially infrastructure investment, has been an important component of policy easing. As the funding capacity of local government is facing increasing constraints due to slowdown in fiscal revenues and land sales, there has been some expectation that property tightening measures will have to be eased to support economic growth.
We do not think it will happen. In fact, the central government has reiterated its intension to continue property tightening, in particular to maintain restrictions on speculative demand. Given the high priority of property tightening in the economic agenda and political agenda, a rebound in house prices is the last thing the central government wants to see. More broadly, this time the central government will not easily give up its efforts in economic restructuring to temporarily boost economic growth.
Tightening to continue
Therefore, we expect that property tightening will continue. To mitigate the conflict between local governments' funding capacity and public investment, the scale of fiscal easing tends to be moderate. That is, fiscal easing will be within this year's budget limits without introducing an additional stimulus package. Public investment will also be supplemented by monetary easing and tax cuts that aim to increase corporate profits and to boost private investment.
Overall, the housing market is likely to gradually bottom out through the second half. However, as new supply will continue to come in, the market is still in moderate oversupply condition. Hence, it is unlikely to observe a swift turnaround in the housing market as in 2009. While transaction volume and house prices may stabilize in the coming months, real estate investment will continue on the soft side for the rest of the year.
The article is a summary of a research note issued on September 19. The opinions expressed are their own.
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