The State Council just issued new regulations, in an attempt to curb real estate speculation and rising property prices. As of today, major property developer stocks are down about ~9%, with the broader index down approximately 5%. Conservative estimates coming from brokerages indicate that, if none of the regulations are altered, property prices will fall about 30% by the end of the year. Details on the regulations: down payments on first homes was raised from 20% to 30%, on second homes from 40% to 50%. Loans for second homes must be at least 110% of the benchmark interest rate (first homes can still be purchased with a 20-30% discount, so long as the down payment is 40% of the purchase value, making the new rules even more punitive than they seem at first glance for anything but a first home purchase). Loans for third home purchases have been completed suspended.

These rules were obviously meant to address concerns that many were using real estate purely as an investment tool, buying apartments and having them sit, empty, without even putting them on the rental market. Having written previously about concerns of a housing bubble, the really interesting thing will be to see how much of a recession this move precipitates (caveat: the term “recession” will be tossed around here if year over year growth approaches 8%). The high GDP numbers, and recent real estate price climb certainly motivated this move – it’s not often one sees regulators poking at bubbles, especially when the consequences could be so problematic. In the long run, constantly rising house prices would have been very damaging for social stability, so it’s a positive signal that authorities are trying to be proactive. This may end up illustrating, however, how very difficult it is to pop asset bubbles, assuming they can even be accurately identified. From the outside looking in, it’s fascinating, and how things play out over the next twelve months will shed light on several open questions: the composition of a lot of recent infrastructure investment and actual levels of urbanization/retail demand for housing.

Meanwhile, well-off poor local friends are losing money hand over fist, when all they wanted to do was settle down and marry a nice lady. Boo.