Strains in China’s Housing Market 1

Monday, June 2nd, 2014
liked this article
Boutique Lawyers – 300 x 250 (expires December 31)
china real estate bubble
FavoriteLoadingsave article

After years of boom and rocketing prices, 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.

“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.”

Home prices in major Chinese cities posted their first monthly decline in nearly two years in May, an independent survey showed on 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 per cent from April to 10,978 yuan ($A1900) 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.

FavoriteLoadingsave article


 characters available
*Please refer to our comment policy before submitting
  1. K.Rad.

    Government can manipulate parts of the economy in a Communist system like China and Crony Capitalist systems like Australia -UK and USA. The hidden cost is the dilution of the purchasing power of the currency, this is terminal for the total financial and co dependent human cohesion. Inflation or the effects of inflation are not yet showing up, because all countries are devaluing their currency's at the same time. This will unfold virtually at the same time globally with a depression that will make the 1930's look like a picnic.