“Beijing has prescribed a strong remedy” for the Chinese economy by flooding it with money, says Wei Gu on Reuters.com. Since lending restrictions were removed in November, outstanding loans are up 30% year on year.
This flood of money has buoyed asset prices: the Shanghai stockmarket is up 69% since the start of the year, while investors are now returning to the property market after the government clamped down on an emerging bubble there in 2007. Today, “long queues increasingly form whenever new apartments go on sale” in cities such as Shanghai and Shenzhen.
After a tough 2008, “the worst is over for the residential property market”, says Feng Zhi Wei of Standard Chartered. Sales volumes are up, while prices have stabilised. Even in a downturn, buyers have been willing to re-enter the market now that costs have fallen far enough to be attractive. But don’t bank on a rapid price rebound. “Buyers – especially at the mass to mid-end – are mostly price sensitive and are likely to hold their purchases if house prices fall outside their affordability levels again.”
Still, high-end property in markets such as Beijing and Shanghai is another matter, say Oscar Choi and Marco Sze of Citigroup. Supply is limited (around two to three months of sales at the current rate), contributing to sharp price rises, while new construction is lower than sales. Speculation is taking hold and may account for around 30% of demand in high-end property in these cities.
Prices in Beijing’s Central Business District rose 6.5% in a week at the end of June, says China Daily. A plot of development land there set a record of RMB4bn ($585m) at auction last week – 15 months ago, it had been withdrawn due to lack of interest. “The bidders have gone irrational. A bubble in Beijing’s property market is definitely there,” says Pan Shiyi of SOHO China in the China Daily.