China regulator expresses concern over a “bubble” in real estate prices

Chairman Guo Shuqing says global financial markets and real-world economic conditions aren’t coinciding

A steep drop in home prices could shatter homebuyers and threaten the economic and financial stability of banks. rongyiquan/Shutterstock

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, expressed the agency’s concern about a “bubble” in Chinese real-estate prices, as risks arise from global financial markets and the nation’s property sector, threatening the broader economy and underlining Beijing’s emphasis on risk controls after a strong pandemic recovery, reported The Wall Street Journal 

“Many people buy homes not to live in, but to invest or speculate. This is very dangerous,” said Guo, analogising the bubble to a “gray rhino” that is an obvious threat but neglected.

He mentioned that global financial markets were out of sync with real-world economic conditions. Beijing was researching ways to regulate capital inflows that would hold back global turbulence from impacting domestic financial markets without deterring foreign investment. 

However, his main worry was the probability of a sharp fall in home prices in China, as purchasing an apartment in a big city has been regarded by many Chinese people as a “surefire investment.”

A steep drop could shatter homebuyers and threaten the economic and financial stability of banks, unable to collect on mortgages.

Thus far, the real estate market has remained frothy during the havoc of the pandemic, which briefly sank the stock market and led China to experience its worst quarter of economic performance in four decades.  

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Even at the peak of the pandemic, Chinese leaders vowed not to use property market stimulus measures to uplift the economy, concerning that home prices would overheat further. As an alternative, authorities have implemented restrictions on home purchases and authorised other measures to lessen the froth.  

Despite property loan growth being lower last year than overall loan growth in eight years, home prices still surged. According to official data recently released, average new home prices in 70 major Chinese cities increased by 0.3 percent in January. 

Later this week, senior Chinese officials plan to meet in Beijing for an annual legislative conclave.