China Real Estate:Policy shock amid unrelenting bullishness brings lower risk appetite

Expectations of policy relaxation wiped out amid a new round of measurestargeted at controlling housing re-sales. Over the weekend, six cities came out withanother round of policy controls, which restrict home re-sales, including Chongqing,Nanchang, Nanning, Changsha, Guiyang, and Shijiazhuang. Homeowners aregenerally prohibited from re-selling their homes within 2-5 years after obtaining realestate certificates. Xi’an and Wuhan also introduced cooling measures on housingASPs and developers’ sales activities. The new measures are targeted at furtherenhancing market control to prevent speculation in the housing market, in our view.

    Timing of the new policies sends a clear message that the government will keepa tight grip on the housing market. While our view is that the policy environmentshould remain unchanged, we contend the timing of the new policies is somewhatsurprising, given the 19th Party Congress is scheduled for next month. In our view, thisnew round of measures provides a clear indication that the government will continueto closely monitor developments in the housing market and that cities with persistentlystrong home price growth will be under scrutiny. Indeed, NBS data shows that citiesthat have implemented new policies experienced rapid housing ASP growth in August,with Changsha and Xi’an registering y-o-y increase of 16.5% and 13.4%, respectively.

    Reiterate our view that risk appetite could decline towards year-end. Last week,we turned more cautious on China’s property sector as we argue that investors shouldtake the opportunity to lock in gains after a record-breaking nine months (see ChinaReal Estate