The rise in China’s property prices has defied expectations so far this year, and Chinese authorities have started to respond forcefully to contain price gains. The bubbly property market has been generally viewed as temporarily supportive of activity growth and commodity demand, but actually has not corresponded to a significant increase in construction growth by floor space area so far this year. This would imply that the current surge in sales will produce more upside for developers’ financial conditions than for underlying commodity and raw
materials demand.
While informal lending has been linked to property purchases for some time, an analysis of the distribution of household deposits by province suggests marginal housing purchases are made with new household borrowing, even in excess of official mortgage loans. The recent tightening of policy guidance toward the interbank market has driven transaction volumes in the pledged repo market to outright decline on a year-on-year basis for the first time since the aftermath of the interbank market crisis in 2013. This should weaken the engine of growth of informal lending by non-bank financial institutions and the availability of new loans for property purchases in the next few quarters.
