1 dollar = 6.8 yuan
300 billion yuan ~ 44 billion dollars ~ 1300 tonnes gold
From October 2008, to save the real estate industry that was deeply troubled by the financial crisis, the government pushed out a series policy aimed to encourage housing market consumption, then the real estate market started to recover. In 2009, with the extra help of gigantic 9.59 trillion yuan credit from the bank, huge amount of money rushed into real estate, this round of bull market in R.E. still shows no sign of abating.
But, now the with the enforcement of many regulations from the central government -- aimed to halt the rapid RE price appreciation in many cities -- the RE market has been shaken, consolidation of the RE industry will follow. Will this cause the escape of the profit seeking hot money currently saturated in RE? How much? Will the money flow into the stock market? During a period of high oil price, rapid inflation, volatile stock market, will the gold become the only "safe haven" for investors?
300+ billion yuan ($44b) outflow
Bubbles in RE market caused uproars in the media, threatened the "soft landing" of the economy stimulus measures. Starting from the end of last year, the government has been pushing out RE regulations with intensity, among them, the executive meeting of the State Council held on April 14 has the most impact, it requires a 50% down payment of 2nd RE property purchase. This targeted the achilles heel of the RE market -- Loan and Credit.
RE investments are leveraged trading activities, if there's a problem in one link of the chain, the ripple effect will cause the following links in the money chain contract quickly. According to data from ZhongYuan RE, since the enactment of the new policies, the sale volume of new residence market in Beijing has been stagnating at low level. it was 483 units on April 15, then it went down every day, 291 unit on April 20th, and it has stayed under the low volume of 300 units since then.
With the new load policy being enforced, there's no doubt that the new load in 2nd quarter will be down drastically. People are wondering, will this cause the money that has been flooding the RE market to escape, if so, how much?
Reading the analysis of industry experts, the exact number of speculative money in RE cannot be accurately investigated or measured, the only source of estimation comes from published statistics by institutions or governing bodies.
According to PBOC published statistic report, last year, the newly increased residence RE loan was 1.4 trillion yuan ($200B), the year end balance of residence RE loan increased 47.9% comparing to same period previous year, rate of growth increased 37.4%. In the 1st quarter of this year, new residence RE load was 522 billion yuan ($70B), loan balance increased 53.4% comparing to same period last year, a 10.3% increase comparing to the end of last year. Mr. Bai from ChangJiang Securities thinks that the down payment was about 30%~40%, from 2009 to the 1st quarter of 1010, investors injected about 720~960 billion yuan ($100~150Billion) of their own money.
Mr. Bai Song tells NBD, the ratio of investment property in major cities such as Beijing and Shanghai is no less than 30% of the overall market, using these numbers, the non-primary residence investment averages to 280 billion yuan ($40B)
This estimate does not include non-mortgaged purchases, for this, a security analysis made even bolder estimate, he thinks at least 1/3 of the current RE sales are contributed by investors, self-use and upgrades contribute 1/3 each. In 2009, RE sales was 4.4 trillion yuan, 1st quarter national RE sale was 798 billion yuan, based on this, the RE investment is approximately 1.73 trillion yuan. Excluding bank's loan, the non-residence invested money is about 480 billion yuan.
Reading the analysis of industry experts, the exact number of speculative money in RE cannot be accurately investigated or measured, the only source of estimation comes from published statistics by institutions or governing bodies.
According to PBOC published statistic report, last year, the newly increased residence RE loan was 1.4 trillion yuan ($200B), the year end balance of residence RE loan increased 47.9% comparing to same period previous year, rate of growth increased 37.4%. In the 1st quarter of this year, new residence RE load was 522 billion yuan ($70B), loan balance increased 53.4% comparing to same period last year, a 10.3% increase comparing to the end of last year. Mr. Bai from ChangJiang Securities thinks that the down payment was about 30%~40%, from 2009 to the 1st quarter of 1010, investors injected about 720~960 billion yuan ($100~150Billion) of their own money.
Mr. Bai Song tells NBD, the ratio of investment property in major cities such as Beijing and Shanghai is no less than 30% of the overall market, using these numbers, the non-primary residence investment averages to 280 billion yuan ($40B)
This estimate does not include non-mortgaged purchases, for this, a security analysis made even bolder estimate, he thinks at least 1/3 of the current RE sales are contributed by investors, self-use and upgrades contribute 1/3 each. In 2009, RE sales was 4.4 trillion yuan, 1st quarter national RE sale was 798 billion yuan, based on this, the RE investment is approximately 1.73 trillion yuan. Excluding bank's loan, the non-residence invested money is about 480 billion yuan.
However, several analysis has told me that this is only the tip of the iceberg. The money to be released from the RE market will include a lot of underground and grey-area private money, these money won't surface back until there's a clear policy signal and investment opportunity.
"I am afraid nobody knows how much amount these money are, but it must be huge, if RE regulation reaches its goal, my estimate is it wont be less than 300 billion yuan", Mr. Bai song said.
Seesaw version 2.0 of RE, Stock?
After this round of regulation adjustment, investors should know that the era of insane profit in RE investing has ended temporarily. But money needs to find outlet, with low interest rate, will be money flow into stock market?
The report release on Wednesday by Zhong Jin Co thinks the tightening of RE market by the government will make the speculative money flow to other areas, including stock market, thus it will alleviate the money sourcing pressure there indirectly.
After this round of regulation adjustment, investors should know that the era of insane profit in RE investing has ended temporarily. But money needs to find outlet, with low interest rate, will be money flow into stock market?
The report release on Wednesday by Zhong Jin Co thinks the tightening of RE market by the government will make the speculative money flow to other areas, including stock market, thus it will alleviate the money sourcing pressure there indirectly.
Liu Liyong, analyst of Xi Nan Securities tell me that, the speculative money flowing out from RE market is very profit-seeking in nature, it will continue to find investment direction. From asset allocation perspective, currently only the stock market can adsorb such amount. If housing prices crash, investors lower their expectation on RE returns, they will withdraw money from RE market and invest into stock market, make stock prices going higher. Inversely, if housing prices surge, investors will invest their money into RE. RE and stock market become a "seesaw".
Regarding to economic recovery and company profit, pass experience in 2009 proved that, the liquidity contraction and stock market are negatively correlated. Chinese market has alway been driven by liquidity. Will the money flown out from the RE market cause more pressure in stock market, exacerbate the bubble of the stock market, especially in the near term？
The worsening of inflation caused the worries of near term interest rate increase. Liu Liyong tells me, by de-forth the RE market, on one side it can achieve similar result of monetary tightening, on the other side, it alleviate the concern of "money bleeding" in stock markets. "if 30% of the outgoing money enters stock market, it will cause many changes, most evidently will be some hot sector becoming even hotter, this will bring exemplary effect. and attract more money entering the market."
Zhong Jin report pointed out, the money left RE will likely flow into more speculative small to mid size companies, such as medical, food, beverage, and consumer related sectors, as well as those having more certainty in growth, less sensitive to policy change.
New opportunity for gold?
At a time of new regulations causing uncertainty and confusions to many people, some start thinking "buying gold for wealth preservation"
Since the start of financial crisis of 2008, policy of US Fed caused devaluation expectation of US dollar in the market. n 2008, indexes of commodity, stock and bonds lost about 40%, while gold price increased by 6%.
Since then international gold prices kept surging higher, in 2009 the gold bull continuously surged pass $1000, $1100, and $1200 round numbers. In a short period from 2001 to 2009, gold price increased 4.5 times, an composite annual increase of 20.7%.
Under the pressure of inflation, gold has an advantage of being traditional risk avoidance, this makes gold as the "safe heaven" from inflation. If the RE market regulation deepens, it can be expected that speculators everywhere will put the houses on sale, considering the volatility in current stock marekt, will it be more likely that the money will flow into gold market?
Zhagn Hejian, an analyst from An-Xin Securities, thinks that gold is mostly influenced by international environment, less affected by domestic policies, as an asset management tool, a proper amount should be allocated. In the era of inflation, attention should be paid to investment-oriented gold products such as bullions with price near raw gold, or paper gold from commercial banks. If for short term investment, gold futures can be considered.
In the past 5 years, gold demand in China increased with a annual rate of 13%. Report from WGC (World Gold Council) indicates that in the next 10 years, gold demand in China will double. The president of the investment department Marcus Grubb said recently, " using the price of 2009, in the next 10 years, annual gold demand in China will be 29 billion dollars".
Another bank investment advisor told the reporter that gold is a stably appreciating asset, it fits in the strategy of wealth preservation, not a speculation tool with great flexibility. He suggests his client a gold asset allocation under 10~20%. For more risk-averse client, gold investment ratio can be increased.
As for gold futures, this analyst thinks, because of huge leverage and high risk, it's more suitable for enterprise and professional investors with need of hedging. if you are not familiar with this market, it's very dangerous to enter the market blindly.
As for gold futures, this analyst thinks, because of huge leverage and high risk, it's more suitable for enterprise and professional investors with need of hedging. if you are not familiar with this market, it's very dangerous to enter the market blindly.
