It was aggressive tightening of loan requirements and purchasing restrictions that contributed to the fear of a hard landing in China and the relaxation of these policies that has helped generate the recovery to date. But are these measures signs that things have already gone to far?
I would say that announcements like this will cause some nerves but its unlikely to sink the market at this stage. When property controls were put in place in early 2011, many commodity markets did wobble but the housing market ultimately proved resilient until restrictions were ratcheted up. I'd imagine a similar scenario this time around, with restrictions needing to be much tighter than they are now.
If sales do start to drop, cries of a debt driven disaster in China are likely to ring louder than at the moment. This is a legitimate risk, but I think China has a better ability to avoid the current malaise experienced in many parts of the Western World.
The big difference in China is not so much the levels of debt but where it resides. A lot of the leverage to house prices isn't the liability of mortgagees, with household borrowing generally low. Rather it belongs to the developers (although they have reduced dependancy on debt in recent years) and local governments who rely on property taxes to fund borrowing for infrastructure.
The the critical differences here is that policy remains a very powerful tool in stimulating demand for housing even in the event of debt problems elsewhere. While this doesn't mean its by any means smooth sailing, it can make the deleveraging process of some sectors much less painful than it otherwise would be.
