Silver as an investment

Another Big Central Bank Warns on Housing Bubble, Frets about Risks to Banks, Blows Whistle on Stimulus

wolfstreet.com / by Wolf Richter • 

PBOC: “Put a brake on the excessive bubble expansion.” 

For Chinese households, owning residential property serves as a mix of risk-free savings account (on the premise, valid in the US as well, that “you can’t lose money in real estate”) and highly leveraged speculative betting game. Some people own vacant apartments like Americans own stocks. A report in 2014 showed that 75% of household wealth had been sunk into real estate. Whatever the percentage is today, it’s high, to where major declines in house prices have caused uproars.

Uproars are exactly what Chinese authorities fear more than anything. But they also fear bubbles, having seen how they implode – and cause uproars.

So they tweak the housing market with various policies, ranging from local measures to central-bank monetary policies, trying to contain the bubbles. And then, when these efforts begin to implode the bubbles and people get restless, authorities step in once again to keep the market from collapsing, which has the effect of re-inflating the bubbles. Hence the yo-yo effect of government policies.

And now the People’s Bank of China is fretting again.

“Measures should be taken to put a brake on the excessive bubble expansion in the property sector, and we should curb excessive financing into the real estate sector,” warned Ma Jun, chief economist of the PBOC’s research bureau, in an interview with China Business News cited by Bloomberg.

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