Residential property prices in major Chinese cities are heading downward, prompting concern that China’s property bubble may be deflating if not headed toward a resounding pop[1]. The Chinese government has been fighting this possibility by imposing increasingly strict sanctions on lending and development. If the Chinese real estate boom goes bust, it would present a major threat to the entire country’s economy, which relies heavily not just on real estate but also on real estate-related investments in market sectors like construction, steel and cement. Many smaller municipalities and provinces also rely on the appreciation of land and the profits from land sales to fund local infrastructure projects.
According to SouFun.com, China’s leading real estate information website, Beijing home prices were down 7.2 percent in May over April, and down 21 percent from May 2010[2]. Some Chinese analysts are predicting a 20 to 30 percent year-over-year correction in coastal cities like Beijing and Shanghai in the coming months. To fend off this possibility, Beijing has further restricted purchasing ability for migrant residents and is requiring higher down payments for second homes. This could rein in property transactions by as much as 50 percent in 2011.
Do you think that China can fend off a housing crisis? Is the market correction inevitable?
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[1] http://online.wsj.com/article/SB10001424052702304906004576367121835831168.html
[2] http://blogs.forbes.com/kenrapoza/2011/06/07/is-chinas-real-estate-bubble-starting-to-pop/
