China's property market and the global economy

Increasing deposits on 2^nd and 3^rd homes is circumvented with a "fee" paid to bank officials.

Central and local government rhetoric on housing ignored 4 crucial factors -

1. Official statistics confirm 64.5M, or 70% of vacant new homes, held by investors with no intention to occupy, indicate this sector of the market is saturated, and beyond the affordability of owner-occupiers

2. The residual 30% supposedly represents the owner-occupier market, indicating an overpriced and undersupplied market sector

3. Investors are dominated by SOE controlled companies, divisions, subsidiaries and related listed property investment companies

4. It is improbable for individuals to be the major investors in this massive inventory of vacant space

Corporate investors are unaffected by government restrictions on house purchases, since they do not apply for individual mortgages from the banks

The official statistics confirm owner-occupiers and individual speculators are not the primary causes of high housing prices.

The state dominated corporate investor sector paid the high prices for the 64.5M vacant homes as evidenced by the high rate of exposure to the property by state fund managers, especially China Asset Management Company.Challenges facing Beijing's policy on undeveloped land -

1. Finding construction companies to build low profit margin housing
2. This construction will undermine attempts to reduce the existing inventory of vacant top end housing, by diverting buyers to affordable homes

To bring the scale of unoccupied hones into perspective, using the CCP's model of the single child family, these vacant properties have the capacity to accommodate around 15% of China's total population in luxury housing.

Policy influences

1. Beijing's price easing policies are influenced by investor companies and individual government connected speculators who will suffer financially
2. Opposed to reducing prices to affordable levels for the mass market, government policies to "stabilize" house prices appear more designed to maintain current high levels and protect vested real estate related interests of government.
3. Banks will be at risk since loan values could exceed property values.

Beijing's challenge is to reduce the massive inventory of overpriced, top end, unoccupied, speculator owned housing and commercial floor space without loosening bank lending, raising inflation, or triggering a property price collapse.

The effect of the hukou

Restrictions question the credibility of the official 70% investor statistic, suggesting a much higher figure.

The hukou is a major detractor for owner/occupiers in cities with rampant property development, by penalising potential non-resident owner-occupiers and the small speculator, while benefiting investor corporations.