Photographer: Qilai Shen/Bloomberg

Adrenaline Shot From China Housing Boom May Spur 2017 Hangover

  • New home sales surged 61% by value in September, data show
  • Pillar of economic growth may weaken as property curbs imposed

China’s moves to cool rampant property prices may have had an unintended consequence -- unleashing a stampede of buyers seeking to get in ahead of further restrictions.

With attempts to avert a bubble intensifying -- property curbs have been rolled out in at least 21 cities and developers even banned from using words like ‘exclusive’ and ‘cheapest’ in advertising -- that boon to realtors pay checks may be about to end.

That poses a dilemma for policy makers, who want to avert a potentially ruinous housing bubble without killing one of the economy’s main pillars of growth. Most curbs introduced so far have been aimed at cooling property speculation by limiting people from buying multiple properties and raising down-payment requirements, rather than shackling developers.

“The central government is cautious about the idea of property-led growth,” said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “While it helps stabilize economic momentum, it doesn’t facilitate supply-side structural reforms.”

The value of new home sales surged 61 percent in September from a year earlier, almost double the pace of the previous month. The buoyant property industry helped the world’s second-biggest economy grow 6.7 percent in the third quarter from a year earlier, bang in the middle of the government’s 2016 goal of 6.5 percent to 7 percent growth.

Developers Plans

Developers -- who had been exhibiting relative caution given their stockpiles of unsold homes in smaller cities -- showed signs of buying into the boom.

New construction starts, a leading indicator of property investment, rose 14 percent in September from a month earlier, the fastest pace since April, according to Bloomberg calculations based on official data released Wednesday. Developers bought 20 percent more land by total value from a year earlier, the largest gain in two years. Completed investment in real estate development rose 5.8 percent in the first nine months of the year, Wednesday’s data showed, perking up slightly.

“The readings show the economy is quite stable for now, with support mainly from property and infrastructure,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “The down cycle may start to show next year as the tightening measures on property start to weigh in.”

With exports weighed by tepid global growth, a reversal in property would raise question marks over whether the economy’s current stabilization will hold in 2017.

“Growth in property investment won’t soon see a quick plunge,” said Chen Shen, a Shanghai-based analyst at China Securities Co. “But given signs the government will post tighter controls over developer financing and the land market, pressure is looming.”

— With assistance by Miao Han, and Emma Dong

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