China has begun to lower housing prices in a gradual manner

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China has begun to lower housing prices in a gradual manner. Most speculators in the real estate market like to dream, and their dreams these days are particularly beautiful. The dream is that the central bank will not withdraw liquidity, and expectations of a rising RMB value will also lead to higher housing prices. In short, housing prices will continue to rise. **The actions of those who speculate in the real estate market are nothing short of remarkable – housing prices in Shenzhen rose by 94% in just half a year, with Shanghai and Beijing following suit. Such a remarkable achievement has amazed the whole world, shocked the Chinese economy out of its slumber, and left policymakers in awe. It’s only because ordinary people lack the necessary knowledge to understand such high housing prices; they have no money in their pockets, and after struggling for a while, they are forced to use those culturally specific Chinese curses, exclaiming helplessly, \"Damn it!\" It’s similar to Ah Q’s revolution: after shouting an insult, he just leaves in frustration. Actually, there’s no need to do that; it’s enough to watch from a distance. Even if one doesn’t see the brilliance of the fireworks, they can still witness the spectacular sight of something burning. However, we must not forget that after housing prices started to rise in 2006, both the invisible hand and the visible hand came into play: interest rate hikes, increases in the reserve requirement ratio, higher down payments for second homes, rising interest rates, and increased taxes. In response to this series of measures, a vivid term emerged in the market at that time: boiling a frog in warm water. As a result, it’s already very clear to everyone. The warm water kept boiling for two years; the frog could no longer bear it and, in a last-ditch effort, struggled around in the pot by trying to get out or stop the boiling process. Eventually, it was saved by a kind old man. Stop cooking; quickly take the firewood out of the stove. Lower interest rates, reduce the reserve requirement ratio, lower developers’ own capital requirements to 15%, offer 30% discounts on interest rates, waive transaction taxes and fees, provide financial subsidies for home purchases – and yet again, housing prices soar. But that’s okay; a housing market that excludes the purchasing power of ordinary people will eventually run into problems. Even if **government power is used to maintain the price of a commodity, it can only do so for a short time; it is impossible to sustain it in the long term. Well, since July 16 of this year, many cities across the country have been gradually implementing a policy requiring a 40% down payment for second-home mortgages. Moreover, there are rumors that discounts on interest rates and taxes related to second-hand home transactions will no longer be provided once these policies expire. Regarding these rumors, some people scoff at them, saying that it’s nothing but a case of \"the boy who cried wolf\" – it’s completely impossible. I don’t know if it’s the case of \"the boy who cried wolf,\" but I think this child who likes to lie doesn’t have any malicious intentions. Moreover, the global economic landscape has quietly changed; Australia’s decision to raise interest rates first serves as a reminder that it is time to withdraw liquidity now. However, with so many cash-strapped projects we’ve launched this year, it has become extremely daunting to withdraw liquidity right away; on the other hand, failing to do so would expose us to the dual pressures of inflation and the appreciation of the RMB against the US dollar. What should we do? Don’t worry; China’s economic experts have plenty of solutions. Haven’t inflation occurred yet? At the moment, it’s only the prices of assets that are rising; there is a housing price bubble. Well, if there’s a problem, we need to address it – let’s focus first on dealing with this housing price bubble. This time, the approach they chose wasn’t to cook the frog in warm water, but rather to cut slowly, taking their time, yet from time to time causing you to cry out in pain. I think no one will have trouble understanding this method; if not, I’ll explain it slowly. With this first measure, the down payment for a second home loan is 40%, and I believe no one will complain about that. For real estate speculators, they have already accumulated a large number of properties this year, borrowing substantial amounts of money from banks using a leverage ratio of four to five times. With the current requirement of a 40% down payment for second-home loans, the leverage ratio is just over one time; in such cases, it’s better not to buy at all. This is the main reason for the significant decline in trading volume. Speculators don’t cry out in pain. As for ordinary people, they don’t complain either; with such high housing prices, they can’t afford it, so they simply don’t even take a look. Developers also have plenty of money on hand; if you don’t buy, it’s great to hold onto those assets until prices rise, so they won’t suffer any losses either. This is the power of a dull knife – when it cuts, no one feels pain. So the second cut comes, and of course, no one will cry out in pain. The second change is that the taxes and fees associated with second-hand house transactions will no longer be exempted. It’s really naive and funny that some people don’t consider this a risk, decide to take the chance and bet again, and rush to buy second-hand homes at this time in an attempt to seize the last opportunity for discounts. If one acts improperly, a knife will do; trying to act like a boss in this world makes it hard not to get stabbed. This third measure is the one announced by Shanghai: starting from November 1st, the interest rate for second-home loans will not only be unfavorable but also increase by 10% on top of the base interest rate. This time, someone cried out in pain. An increase in interest rates, although it cannot be called a withdrawal of liquidity, is essentially a restricted withdrawal of liquidity. This is a blow to real estate speculators, while for those making upgrades to their homes it’s like a blunt tool that will cause pain for some people. Therefore, it is only at this time that people come to understand a simple truth: the discounts offered in the past were all traps. What will cause pain for everyone is the interest rate hike around June next year. At this point, the blunt tools began to become quite sharp, their edge directed at all those who had mortgage loans; and thus, a decline in housing prices started. The central bank tries its best to prevent a housing price bubble from forming, but is it possible for such a huge bubble not to burst? Speaking of this, of course, there are many details that won’t be covered one by one. In short, a 40% down payment for a second home mortgage is by no means a case of \"the boy who cried wolf,\" and the China Banking Regulatory Commission is not that child. Making some preparations to cope with difficulties is something that every home loan debtor must face.