BIZCHINA / Weekly Roundup
Striking a strange balance
By Hu Yuanyuan (China Daily)
Updated: 2007-05-30 10:14
The stock and property markets are like the two scales of a balance: when
one goes up, the other comes down. The reason for that is simple: since
the amount of money and channels of investment both are limited, a flow
of funds into stocks usually means a dry weather for the property market,
and vice-versa.
This is true of all economies. But in China, the two markets can also
"co-exist peacefully". In fact, they fuel one another. And at present,
both the markets are sizzling to say the least despite all the steps
taken by the government to rein them in.
The constant flow of money has already pushed up the Shanghai composite
index by about 50 percent this year. And despite the government raising
the bank reserve ratio and interest rate several times to mop up excess
liquidity in the market, the index still climbed above 4,000 points in
May from 2,715 on January 4.
Correspondingly, Beijing's real estate sector is also roaring ahead in
spite of the government's measures to cool it down.
National Statistics Bureau data show housing prices in 70 major cities of
the country rose 5.6 percent in the first quarter of the year, with
Shenzhen taking the lead with a 12.6 percent increase. Beijing ranked
third with a 9 percent rise.
A highly bullish stock market does divert some money from the property
market, according to leading property brokerage firm 21st Century. "More
pre-owned houses have been on sale recently because their owners are
eager to sell them off and cash in on the bullish stock market," says a
21st Century source in Shanghai.
The number of pre-owned houses on sale in Beijing jumped 19.3 percent in
April over the previous month. In Shanghai, it rose 9.6 percent. It's a
different matter that the average price in the two cities increased by
0.4 percent and 0.3 percent, too.
Related readings:
Stamp tax on stock trading lifted to 0.3%
Property investment up 27.4% Property stocks lure value investors
Cities in danger of housing bubble
"Given the quick return from stock market investment, people who want to
buy a house mainly to improve their living condition defer their plan to
do so temporarily," says 21st Century research department analyst Meng
Qi. The reason for that is simple. They want to make more money so that
they can buy an even better house. "Those who plan to buy a house to move
into after marriage or to shift immediately, however, seldom change their
plans."
In contrast, the sale of new houses in Beijing in April dropped 14.9
percent year-on-year, according to Beijing Property Transaction
Management's website.
Head of Residential Industry Association of the All-China Federation of
Industry and Commerce Nie Meisheng says: "The ever-increasing stock
benchmark will weigh on China's property market, especially on the
markets that see strong investment initiatives." The impact on Beijing's
property market, however, will be limited because only one-third of the
property bought in the city is for investment purposes.
But again, when funds start flowing into the bourse, it prompts an
increasing number of people, who have already made money from stocks, to
turn their eyes towards the property market. Wan Qian, a 38-year-old
executive, is one such person. She has bought three apartments - in
Beijing, Wuhu and Xi'an - in the past 10 months.
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