Tighter Housing Market Regulations Threaten China's Real Estate Investment.

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On March 1, the Chinese government plans to toughen the current 20% capital gains tax on home sales, tighten restrictions on home purchases and real estate investments, and raise mortgage interest rates in urban areas where demand is high. As announced, buying a second home is expensive. The government hopes the measures will curb the rise in property prices and help avoid a housing bubble that could disrupt the economy and cause social tensions. The real estate sector bubble has become one of the main characteristics of China's uneven growth. Rising house prices are causing a surge in real estate investment, but households are being forced to increase their savings for home purchases, which is suppressing consumption. The planned regulatory tightening suggests the government is willing to sacrifice some immediate economic growth to make housing more affordable for the middle class. Following the announcement of tighter regulations, Chinese developer stocks plummeted on March 4, and SSEP, an index of Shanghai-listed real estate stocks, fell 9.3%, the largest daily decline since mid-June 2008. It became large. "The new directive could be very serious or not at all, depending on how it is implemented. But its wording is unexpectedly harsh," China Economist at Société Générale CIB, Yao Wei, said. "The impact three months from now may not be that big, but it's creating a very big negative expectation."

The outlook for China's real estate sector has serious implications for the commodity market and overall growth in China. Real estate investment accounts for almost 14% of China's gross domestic product. Patrick Chovanek, associate professor of practice at the School of Economics and Management at Tsinghua University in Beijing, said the biggest concern for the sector's outlook is the heavy construction pipeline, a result of the recent construction boom. The construction boom has given rise to entire uninhabited towns, also known as "ghost towns." "We need to continue to see strong demand to absorb what's in the pipeline," Chobanek said in a recent interview with CNBC.

Ren Shengfeng, an economist at IHS Global Insight, said the collapse in China's real estate market will be caused by two factors. One is a sharp economic slowdown or a significant deleveraging.

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