/// International Property News
Is China’s
Housing Bubble
Beginning to
Burst?
Are the Boom Years Over for China’s Property Market?
“Real estate is nearly 20 per cent
of GDP (gross domestic product) in
China so if that sector has a problem
you definitely have a problem,” Joerg
Wuttke, president of the European
Union Chamber of Commerce in
China, told AFP.
“Definitely a real estate bubble
bursting is bad news.”
Earlier this month, financial
analysts from Japan-based
Nomura Group issued a grim
report on China’s housing
market: “To us, it is no longer
a question of ‘if’ but rather
‘how severe’ the property
market correction will be,” the
report read.
Nomura—which has
historically been bearish
on China, as the Wall Street
Journal observes—predicted
that a downturn in the
housing market, caused by
oversupply and shrinking
developer financing, could
sharply impact China’s
economy, perhaps even
driving GDP growth to less
than 6 percent in 2014.
China’s economy is vulnerable
because property investment
accounts for anywhere from
16 percent to 20 percent
of gross domestic product,
according to varying analyses.
Data released on Sunday
by China’s National Bureau
of Statistics show that an
increasing number of major
Chinese cities surveyed
experienced month-onmonth housing declines in
April (eight cities) compared
with March (four).
Hangzhou, the capital of
eastern Zhejiang province,
saw the steepest decline, with
new-home prices dropping
0.7 percent in April. The
other seven cities surveyed
that reported declines were
Ningbo, Wuxi, Wenzhou,
Jinhua, Anqing, Ganzhou, and
Huizhou.
After years of boom that have seen
prices rocket, the prospect of a bust
is looming over China’s vast property
sector, with authorities hoping to
avoid a meltdown that could send
shock waves through the world’s
second-biggest economy.
Housing was doled out by the state
when Communist-style collectivism
dominated economic management.
But in the past two decades that
has given way to market-oriented
principles as China’s economy has
opened.
New home prices have soared, more
than quadrupling in Beijing and
Shanghai since 2003, and more than
doubling in the country as a whole,
according to a report by Jeremy
Stevens, Beijing-based Asia economist
at South Africa’s Standard Bank.
The increases have been a key source
of wealth for China’s rising middle
classes, and a major driver of the
economy.
Now some — including individuals
who have made fortunes — foresee
imminent disaster.
“I think Chinese property is the Titanic
about to crash into the iceberg right
in front of it,” Pan Shiyi, billionaire
chairman of commercial developer
SOHO China, said at a forum, China
Business News reported last week.
At the same time, surging prices
have driven homes beyond the reach
of many ordinary Chinese, stoking
resentment and inequality.
The People’s Bank of China, the
central bank, last month asked
domestic lenders to give first-time
home buyers priority in mortgage
lending, which analysts saw as aimed
at boosting home purchases amid
oversupply.
Observers and analysts concur that
problems are rife and cannot be
ignored by authorities, lest economic
growth take a hit.
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NEGATIVE OUTLOOK
Home prices in major Chinese cities
posted their first monthly decline
in nearly two years in May, an
independent survey showed Saturday,
providing new evidence the once
red—hot market is losing steam.
The average price of a new home
in 100 major cities declined by 0.32
percent from April to C¥10,978
yuan (RM5,654) per square metre,
according to the China Index Academy
(CIA), the first fall since June 2012.
Year on year, new home cost growth
slowed for a fifth straight month,
rising 7.84 per cent, though prices fell
in 31 of the 100 cities.
The results mask huge variety,
however, as some of the country’s
largest cities are still maintaining
double-digit gains. Beijing prices rose
22.39 per cent year-on-year in May.
Barclays economist Chang Jian said in
a report that “the risks of a disorderly
adjustment are real and rising”, given
factors including expectations of
falling prices, financial trouble among
developers, heavily-indebted local
governments and a weak financial
system.
Moody’s Investors Service
downgraded its outlook for Chinese
property to “negative” from “stable”,
citing an expected “significant
slowdown” in residential property
sales growth, high inventories and
weaker liquidity over the next year,
along with lower expectations for the
economy.
GHOST CITIES
There is so far little concern a
domestic real-estate meltdown could
trigger panic in the broader global
economy and banking system such
as during the sub-prime crisis in
the United States, as China’s heavily
regulated financial system and
property market remain relatively
isolated.
The housing trouble, however, comes
at a sensitive time as China’s leader