Government stimulus measures, especially those aimed at supporting the real estate sector, helped stabilize China's economy in the third quarter. However, new risks are emerging in several areas that threaten the government's stated policy goals for 2016. Five key risks deserve attention.
According to National Statistical Bureau, from Jan to Sep, the contribution of real estate to GDP is 8%. However,according to CICC research team, in third quarter, property related service accounted for 3.8% of real GDP growth, and 12.3% to norminal GDP. However, this figure is calculated only by construction GDP. It does not include the property related industries. While construction related raw material industry accounted for 5%, furniture and house decoration was 5%, and property finance is 2%.
Shanghai Stock Exchange on 28th Oct published policy on strengthening the credit contro over supply-excessive industry, including real estate, iron and coal industries. This action will restrict debt release of companies in those industries and underwritters have to examine clearly before they help issue debt of companies.
Because of RMB depreciation, cash is flowing into HongKong real estate industry. A new property for upper class buyers sold 40% of its houses to mainland investors. Most of them are willing to rent and wait for increase in price.
Li Ka-shing sold most of this asset in 2015 and then transferred his investments in Europe, especially in Britain. He focus on infrastructure construction. Although losing around 100 billion HK Dollars, he continuously invest and he is going to acquire 51% of Britain National Grid.
According to Citigroup report, in Sep, Tianjin, Foshan, Changzhou, and Changsha is exceeding 100% of house voluume turnover. Citigroup said although Chinese real estate industry is in a huge bubble, but the international economy is also facing the same bubble. Current city governments' restriction on real estate is a positive signal that government is trying to change this situation. Jianlin Wang of Wanda said the biggest problem now is the fast growing in 1st and 2nd tier cities but decreasing price in small cities. The rate of houing vacancy is to high.
Hangzhou is following Xiamen and Suzhou' policy on restriction of non-local residents purchasing houses. Non-local residnets is becoming the main force of house purchasing since 2016. After G20, the oursiders purchase rate accounts for 39.3%, and among them, 25.4% purchase two houses. Economist claims that in a short period, purchasing house is contributing to decrease inventory policy, but in a long period, it will drive up house price. Surrounding cities' house price may also increase because of Hangzhou's policy.