China’s attempts to slow runaway home-price growth in major cities are showing little sign of success, stoking the threat of a housing bubble that could destabilize the economy.
New home prices rose the most in six years in August, jumping 1.2 percent from July, according to Bloomberg calculations based on government data. Home prices rose in 64 of 70 cities tracked by the government, up from 51 the previous month. Shanghai prices surged a record 4.4 percent for a year-on-year gain of 31 percent, while Beijing’s climbed 24 percent from a year earlier.
The gains suggest moves by city governments to cool surging home prices over the past six months are doing little to damp demand from investors looking for alternatives to stocks and overseas property. That may prove to be a challenge for central government policy makers on how to respond without choking off growth in the world’s second-largest economy by squeezing credit.
‘The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,’ Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a Sept. 14 report. ‘And bubble it is. The real question for investors is when and what will pop the bubble?’
This post was published at David Stockmans Contra Corner on September 20, 2016.
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