There is no denying that there are real estate bubbles in mainland China, Hong Kong, Macau and Taiwan. We have seen a lot of counter measures taken by governments to make the bubbles smaller without bursting them. It is understandable that governments don’t want to see real estate bubbles burst because capsizing the real estate market will certainly bring a devastating blow to any economy, weak or strong.
At the height of the fear for busting the real estate bubbles, local governments in China’s major cities, including Beijing, Shanghai and Guangzhou, issued purchase restriction orders to curb the overheating real estate market. Beijing is the first city to adopt this measure. Those who have Beijing hukou can own a maximum of two houses, while those relying on work history in the city can buy one house. The city forbids companies to purchase houses.
Even though we have not seen substantial price tumbling, with signs of the real estate market faltering amid economic recession, many local governments have started to loosen up the restriction. The central government of mainland China has also unveiled positive gestures since late last year. The People’s Bank of China’s cut 25-basis-point with immediate effect in the benchmark lending rates and the deposit rates on August 25. The average cost of new homes in China rose for the fourth consecutive month in August. The mean selling price of new homes in 100 cities rose 0.95 percent to 10,787 RMB per square meter in August as compared to July.
Meanwhile, the housing prices remain stagnant in the recent two years in Taiwan in the face of a whole bunch of policy tools including luxury taxes to curtail the rising trend. The real estate industry has repeatedly asked Taiwanese government to set free annul those measures and refused to significantly lower the prices. Whether or not by coincidence, the central bank of Taiwan cut its benchmark interest rate to 1.75 percent from 1.875 percent on September 24th, 2015. It is the first cut since 2009.
From the consumers’ perspective, the prices barely budge in most markets. There is no need to panic when there are only heralds of the shrinkage of the bubbles. We need to see significant downsizing of the bubbles otherwise we are simply stuck in many short vicious cycles of making the bubbles to grow even bigger and bigger just at a slower and zigzagged pace. There are pains associated with downsizing the bubbles. But if we do not endure the pain, we are just postponing the burst not defusing them once and for all.