Chinas property bubble finally at bursting point Analysts point to softening prices, plummeting sales as warning signs Source: Straits Times | World Grace Ng China Correspondent In Beijing BUSINESSMAN Allen Zhao has been waiting since the middle of last year for prices in the scenic southern city of Hangzhou to rise high enough this year to sell his two-bedroom apartment for about 2 million yuan (S$405,300). Last Monday, he was horrified to hear that his neighbour let her place go for just 1.7 million yuan. That is not much more than the price I paid in 2012, said a rueful Mr Zhao, 45. Now Im regretting not selling earlier - more bad news about the property market keeps coming in every day. The property sector woes have kept coming: average new home price rises across the country have slackened for three straight months; property developers in big cities are offering discounts to prevent sales from plummeting; and foreign investment in Chinas real estate has fallen to the lowest in at least a decade. All this has led to Nomura economist Zhang Zhiwei citing a property market downturn as the biggest risk to the Chinese economy this year and next year. It has also caused more analysts to think the long-awaited correction in Chinas red-hot property market may be finally appearing, after several false starts over the past few years since the authorities introduced property restriction policies to cool runaway prices in mid-2010. The key challenge Chinas leadership faces is whether it can guide inflated property prices to moderate gradually. A sudden loss of investor confidence could cause prices to crash - particularly in smaller cities which face a supply glut due to over-construction. This, in turn, would be a drag on Chinas already slowing economy, to which the real estate sector is estimated to contribute 15 per cent. Renmin University professor Ma Guangyuan warned in a commentary in China Daily recently that China should prepare for the popping of the property bubble. Beijing-based real estate researcher Zhang Yinqing echoed this: People are more sceptical this time of a property bubble bursting because there have been at least three times in the past few years that media speculated a downturn, or even a crash, when the government imposed curbs, but prices only continued to rise. But this time, its real - rich investors are no longer speculating on China property, the government is still tightening credit, and the middle income cant afford the current high prices, so its only a matter of time that the bubble deflates. Indeed, unlike previous years when the authorities had to restrain pent-up demand by imposing curbs, property price rises are stabilising without any government intervention of late. Second-tier cities like Hangzhou and Changsha are mulling a reversal of four-year property curbs as sales plummet, the state-linked Shanghai Securities Journal reported on Wednesday. This suggests that local governments are trying to prevent any drastic downturn in the market. And for the first time in eight years, the annual government work report delivered at key parliamentary meetings last month did not specifically pledge to regulate property prices. Instead, Premier Li Keqiang said the government would regulate differently, in different cities, in light of local conditions. China has not experienced a full-fledged country-wide property market bust in recent history. But a crash on the southern Hainan island during 1988 to 1992 reportedly saw average prices plunge by two-thirds, toppled several smaller developers, saddled the local government with debt, and left scores of estates half-finished. The proportion of foreign investment in Chinas property market dropped to 0.08 per cent in January and February this year, the lowest in at least a decade, data from the National Bureau of Statistics showed. While foreign investors activity is minuscule compared to domestic players, their moves do sway the market. As for local investors, rich Chinese migrating abroad have made headlines of late, piling into real estate markets abroad such as Australia and Los Angeles, where they perceive property valuations to be more attractive. Another key group - Chinese speculators who had been fingered as the key culprit of skyrocketing property prices - have been inactive or are even dumping properties, according to a Xinhua report last week. The report also revealed a government plan to set up a national real estate registration system by 2017. Having a system that tracks ownership of properties across the country would pave the way for a national property tax that discourages speculation by imposing heavier costs on those who own multiple homes. In the meantime, although there have been no property curbs since early last year, sales in some key cities have dropped drastically of late. The secondary property market of most of Chinas biggest cities, including Beijing and Shanghai, saw sales fall by more than 50 per cent in the first quarter of this year compared with the same period last year, real estate brokerage firm Century 21 said. All eyes are now on the second quarter: if sluggish home sales do not pick up then, pessimistic sentiment could continue throughout 2014, warned Century 21 research director Sang Yufeng. [email protected]
Posted on: Mon, 07 Apr 2014 12:03:35 +0000
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