China house sales rocket in September on stimulus, but doubts remain
Beijing has lurched from tough love to feverish salesmanship to drive up home sales, reminiscent of the stock market fiasco.
House sales are rising at an explosive pace in China across most regions of the country as stimulus measures kick in and the Communist authorities launch yet another cycle of credit growth.
Fresh data collected by JL Warren Capital show that sales of existing homes surged by 115pc from a year earlier in the second week of September, rising to 135pc for the so-called 'tier two' group of mid-to-large size cities.
It is the second week of vertiginous growth rates and suggests that buyers may be switching to hard assets after losing confidence in the Shanghai and Shenzhen stock markets. The Chinese media has reported the first signs of a buyers' panic in some cities.
Any sign of a rebound is highly significant for a world economy that has been flirting with recession for several months and is now attuned to every move in China. But it is far from clear whether this is yet another sugar-rush or a genuine turning point as the Chinese authorities struggle to handle the aftermath on an epic credit bubble.
Central banks appear to be having great trouble reading events in China, where data is mistrusted and the instruments used to regulate the economy are unfamiliar and often misunderstood.
The US Federal Reserve held fire last week on the first rate rise in nine years because of fears that China may be in deeper trouble than admitted so far. In a rare departure from central banking etiquette, Fed chief Janet Yellen hinted that the Chinese authorities no longer know what they are doing.
"I think developments that we saw in financial markets in August in part reflected concerns that there was downside risks to Chinese economic performance and perhaps concerns on the deftness with which policy-makers were addressing those concerns," she said.
Warren Capital said the sales of new homes were more modest, rising 66pc in the biggest 'tier one' cities and 22pc for the 57 cities tracked across the country. There is still a huge glut of unsold properties in the smaller cities of the interior, where rampant over-building was at its worst, but there may at last be glimmers of hope even in these areas.
The data is collected directly from the government's real estate centres around the country and offers an immediate snapshot of the market.
It follows the release of figures from the National Bureau of Statistics last week showing that house prices rose 1.7pc in August from a year earlier, and have now been recovering for several months. Prices rose 32pc in Shenzhen.
The Chinese central bank (PBOC) has cut interest rates four times since the loosening cycle began in November, when monetary policy was ferociously tight. Average mortgage rates have dropped to near 5pc from 7pc in mid-2014.
Regulators have lifted curbs on purchases of second homes, cut down-payment requirements from 30pc to 20pc, and are now actively encouraging teachers and civil servants to buy property with special incentives.
The authorities appear to have lurched from a 'tough love' stance last year to a feverish salesmanship, ominously reminiscent of their on-off interventions in the stock market debacle.
It is unclear whether premier Li Keqiang has abandoned his efforts to rein in the credit bubble before it spins out of control completely, or whether he has been overruled by powerful vested interests within the Communist Party. There have constant rumours that he may soon be purged, a development that would shatter any remaining confidence in China's leadership among global investors.
The great unknown is whether the new signs of life will translate into another burst of housing starts and construction, or fizzle out quickly. The developers are still holding back, afraid that the overhang of properties - 31.5 weeks's supply - will take a long time to clear.
Land sales to builders have stabilized after plummeting 32pc, but have yet to bounce back. A number of local governments have been trying to sell development sites to raise revenue, only to discover that nobody turns up at the auctions.
"The structural problem of oversupply may have been eased slightly with better sales and lower housing starts, but is still far from resolved and high inventory pressures persist," said Nomura.
Construction reached 15pc of GDP at the top of the boom - almost exactly the same as in Spain before its property market collapse - and became the biggest single driver of the economy.
This was a 'one-off' effect as migrants from the countryside flooded into the cities. The flow has slowed dramatically over the last five years. China's workforce is now shrinking by 3m a year. The demographic structure is ageing fast, replicating the pattern in Japan.
"We think that the housing market recovery is unlikely to be sustainable and will weaken in 2016 for structural reasons," said Junheng Li from Warren Capital.
The warnings were echoed by Ma Qingbin from the China Centre for International Economic Exchanges, a state think-tank. "All the problems arising from overcapacity in the property market are unlikely to be solved in six months or one year."
The mismatches in the market are chronic. There is a severe shortage of houses for poor people, yet blocks of glitzy middle-class apartments that few can afford stand idle in ghost cities across China.
For now the spigot is on again. Credit is growing briskly again. The 'true M1' measure of the money supply is rising at the fastest rate since early 2013. Fiscal stimulus is back to normal after a crunch earlier this year.
The data emerging from China is almost certain to look better for a few months, whatever the underyling health of an economy addicted to $26 trillion of credit. This superficial health is not going to make Janet Yellen's task any easier.