CASS Researcher: Home Price Rise Was Sparked By Stock Market

Deputy director of CASS Financial Markets Research on the rise in first-tier home prices:

In the last round of price increases in each period, the fastest growing volume of about 90 square meters is the total price of the small and medium size low, but the most obvious characteristics of the first-tier cities real estate cycle is sales of larger, higher priced homes is growing rapidly.

He dismisses the argument of stimulus, since first-tier cities didn't ease policy. Others point to, in the case of Shenzhen, a gap between population and housing supply. Shenzhen has about half as much new housing added annually as Beijing and Shanghai......but why did prices take off in 2015 and not in previous years?

From our observations, the Shenzhen housing prices from December 2014 started to rise, rose the fastest time was in May 2015 and in June, after July, housing prices in Shenzhen rose substantially no acceleration. In 2014-2015, home price increases in Shenzhen and the rise in stock market prices is basically the same. From the phenomenon can be judged, Shenzhen and first-tier home price increases in 2015 is stock market related.

He explains:

Shenzhen stock market differs from the Shanghai stock market is that there are small board and GEM, small plates are now nearly 800 listed companies, the GEM has nearly 500, the two add up to more than 1,200 listed companies. Listed companies have a characteristic, in which he listed on the Stock Exchange, will be in the city to open an account, set up an office, some listed companies will invest in stocks. Management accounts for all individual shareholders and corporate shareholders are placed in the city.

Shares rose during paper wealth of shareholders of listed companies to increase rapidly. Despite last year's stock market volatility, at the end of 2015, the average price is still the GEM index rose 84%, small plates rose by 53%, and small board and the GEM market from the beginning of the end of 2012, the stock has been rising continuously for three years, the cumulative rose by more than 200%, shareholders of listed companies, especially the rapid increase in shareholder wealth promoters of these new wealth concentrated in Shenzhen.

Also rising stock market wealth effect generated will stimulate the Shanghai real estate market, but the effect is not as good as Shenzhen. Because the Shanghai Stock Exchange blue chips mostly state-controlled, and the Shanghai Composite Index rose far behind the small plates and Shenzhen GEM index. Of course, with Shanghai as the center of the Yangtze River Delta is China's most economically dynamic region, which has a large number of companies listed on the Shenzhen SME Board and GEM, therefore, a sharp rise in the small board and GEM stock price so that the Shanghai real estate market affected. Shanghai surrounding cities, Nanjing, Hangzhou and Suzhou, also distributed a considerable number of tech listed company's headquarters, while the price performance of these cities are equally eye-catching.

The stock market on the property market is also reflected in the remuneration of securities practitioners. 2015 a substantial increase in the volume of the stock market, the securities industry's profitability significantly improved, securities practitioners income increased significantly, salaries of middle managers in more than 100 million, some companies pay senior staff of more than 10 million yuan . These employees are mainly concentrated in Beijing, Shanghai and Shenzhen.

Substantial growth mansion sold (see the previous analysis) from the other side corroborated facts Shenzhen, Shanghai and Beijing real estate market is affected by the stock market.

From the logic of the stock market affect the property market, the stock market after January 2016 there have been nearly 20% decline, should the property market inhibitory, but because there are new factors to stimulate monetary policy from, making the property market trend to continue.

Monetary policy took over when stocks failed:

The property market and the stock market, as there is no market equilibrium price, price fluctuations are mainly dominated by the expectations, the trend of prices will be self-reinforcing, once formed in 2015, the background became the first-tier house prices rising trend, and then subjected to the above series from currency stimulus policy, the conclusion is self-evident.

Increased leverage also fueled the rise in home prices:

In the context of rapidly rising asset prices, investors tend to increase leverage, which is the asset price volatility during the general rule. In the first half of last year's rapid rise in the stock market is closely related to the margin and the rapid growth of off-site with the capital, and thus led to a stock market crash occurred. After the rapid rise in property prices, off-site with the capital stock of the rapid development of similar behavior, worthy of our attention.

According to public reports, there are many organizations offer "down payment loans," and some even offer P2P platform 1/2 down payment in full of the amount of credit.

For the bank's risk control, the down payment mortgage loan is the first safety valve, agency provides a "down payment loans", the actual mortgage would be "zero down payment" products, the bank's risk control valve completely ineffective this is a very dangerous phenomenon! America's subprime mortgage crisis is because a large number of zero-down payment mortgages caused.

He warns that the government must be wary not only of rapid price increases, but also rapid declines. This is especially the case in Shenzhen, where Hong Kong's market trend could spillover.

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