Capital flows moving from real estate

Limits on property purchases redirect funds to A-shares

Limits on residential property purchases are driving capital flows into stocks, resulting in immediate, short-term increases in stock prices in China's A-share market, analysts said on Monday.

As many as 20 cities have pushed up their thresholds for home purchases, including setting higher down payment requirements and narrowing the definition of qualified buyers. More cities are on their way to introduce similar measures to curb fast growth of average housing prices and to limit speculative buying.

Li Xunlei, an economist with Haitong Securities, said that the measures against speculative buying aimed to deleverage the property market.

"A part of the capital withdrawn from the property market will go to the stock market, which has investors with more tolerance for risks and more liquidity," said Li.

Qiao Yongyuan, an analyst with Guotai Jun'an Securities, said that it was a natural result for capital owners to divert money from one market to another when policy makers were cooling down the overheated property market and the stock market was on track for recovery.

However, the impact would not last long because the entire size of capital flows from property to stocks was limited due to the low liquidity of the property market, Qiao added.

Also, the stock market still had uncertainties due to fluctuating currency exchange conditions.

Stricter policies over the real-estate market will also put pressure on the performances of A-share listed developers, according to a CITIC Securities strategy report.

Mao Liyuan, a 48-year-old Shanghai investor who sold her 85-square-meter apartment for 5.1 million yuan ($761,100) in September, said she will put about just one million into the stock market and put the rest in wealth management products and gold to diversify risks.

"You have to take a lot of stock market risks into consideration. For investors, the property and stock markets are not the only options," she said.

The A-share market closed on Monday with gains in both Shanghai and Shenzhen. The Shanghai Composite Index gained 1.45 percent to 3,048 points and the Shenzhen Component Index gained 1.65 percent to 10,471 points.

wuyiyao@chinadaily.com.cn