No matter how hot they get, property markets tend to cool in the same ways. Attention starts to shift from year-on-year price changes to month-on-month comparisons. Transactions dry up. The shares of listed developers suffer, as they offer incentives to shift inventory. Analysts start to talk about “froth” being “skimmed.” All this is happening now in China, where prices in more than half of the 70 biggest cities were flat, or fell, between July and August.
There are few reasons to suspect a crash is imminent. Households are generally not buying properties they cannot afford with money they do not have – the proximate cause of the collapse in the US and elsewhere. There are still very powerful incentives for buyers to load up on property: low interest rates on both deposits and loans, and a very shortlist of alternative outlets for savings. Local governments, which depended on land sales for about a third of their revenues last year, also have a strong interest in keeping prices high. Only two cities responded to the government’s July call for added restrictions on housing purchases, for example.
Still, some sense of a cycle would be welcome. In the 17 years since the State Council abolished the allocation system of housing, allowing apartments to become privately-traded commodities, the market has never experienced anything close to a slump. That has led investors to believe that prices can only go one way. Demonstrating otherwise is fraught with risk, given that the property sector accounts for more than a quarter of final domestic demand in China, according to UBS estimates. Yet policymakers should take their cue from the 76 per cent of respondents to a central bank survey last week who complained that prices were too high – the highest level since real estate data were first included in the quarterly poll in 2009. If social stability is policymakers’ overarching aim – and it is – a slowdown is more than just desirable.