2015-03-30

More on China's Property Policy Changes

Reuters: China eases housing tax, lending rules to fight downturn
The People's Bank of China (PBOC) said on its website that commercial banks can now lower their minimum downpayment requirement for buyers of second homes, and with outstanding mortgages, to 40 percent from 60 percent previously.

The Ministry of Finance, in a separate statement around the same time, said individuals selling an ordinary house were exempt from business taxes if they had owned it for more than two years. Analysts said sellers were previously exempted from taxes only if they owned the houses for at least five years.

The policy sweeteners, which were more generous than what the market had expected, confirmed rumours swirling in China on Monday that authorities were increasing support for the flagging real estate sector.

But some doubted the measures would spark a turnaround.

"We expect the housing market correction will continue, but at a relatively modest pace through the course of this year," said Zhu Haibin, an economist at JPMorgan.
Policy tends to fail when it's counter-cyclical because the government either waits too long to act or does too little. China's had better luck than Western governments since the government can build a consensus more quickly, but the government has only experienced one major slowdown in the past 15 years (2008) and there was global coordinated central bank action involved. The rest of the time, the government has only needed to nudge the market, and it is "easy" to nudge the economy in one direction or the other (ignoring unintended consequences)—but it is far harder to shift hardened behaviors. China worked very hard to kill the housing bubble several times and it failed in every instance. Only when the credit cycle peaked did housing growth slow. In 2011, housing slowed because the 2008 stimulus ran out of steam. The government panicked and pumped money into the system. In 2014, the government did not panic and it still hasn't. Policy has barely budged from early 2014. All the housing policy changes up until now are not stimulus for the housing market, they are simply a return towards normal, towards a free market in real estate. In normal times, this would be bullish because it would encourage more speculation. When people are afraid of falling prices, however, it does very little to change the market psychology.

Policy shifts in late 2014 delivered a boost to the market because central government action generated optimism. This latest move should as well, but outside of first-tier cities, a major pick-up in the housing market is unlikely. Risk is still greater on the downside, since further weakness here would confirm the market has turned. Nothing kills hope faster than major policy moves that have as much impact as firing BBs into a charging elephant.

No comments:

Post a Comment