We better keep an eye on Chinese housing prices

chinese real estate bubble12By Julia Pastor | Given the changing global economy and its prospects for the coming months, all eyes are on China, where policies to curb real estate prices are beginning to take effect. According to official data from the national statistics office, that JP Morgan in Spain includes in its Friday report, in November, new housing prices in China fell by -0.17% MoM (although they are still at +2.3% YoY) nationwide. However, other sources of information such as company consultancy Soufun Holding says that housing prices have been falling for the last four consecutive months in 60% of Chinese cities, with cumulative declines of 3-4% (although the national average is flat).

According to real estate analysts at JP Morgan, prices peaked in late 2011, and the number of transactions in 2011 dropped by 1/3 compared to the average volume of the years 2008-2010. If it were not for the fact that the government measures have the potential of bringing back the demand levels of 2010, the drop in prices could be of 15-20%, especially in cities that are not clearly ‘tier 1’ so as to adjust the supply-demand to the recently generated over-supply. Officially JP Morgan expects a fall in housing prices across China during the next 12-18 months of 5-10%.

“The property sector contributes an eighth to China’s GDP, but a slump would have a much stronger indirect impact on China’s economy due to the ramifications of the sector (commodities, consumption, employment), and very important consequences for the financial sector and home economics. It is true that only 6.5% of the loans granted by Chinese banks have been development loans, but we do not think it is necessary to remind anyone that in 2008/09 the world underestimated the consequences of the drop in housing prices in the US.”

If China slowed down its GDP growth from 8-9% to 5-6%, it would be enough to cause a global recession.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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