As China’s economic growth seems to be cooling down, the Chinese real estate market is doing the same. So far in the first three quarters of 2014, housing sales have fallen by 10.8%. While the overall trend has been downwards, home sales actually increased from August to September. However, this may not be a sign of a real estate recovery, the increase may have actually come from sales by developers hoping to clear out their portfolios. This explanation is supported by the declines in investment growth and construction. Construction is down 9.3% when compared to the first nine months of last year while investment growth is lagging 24.9% from the average of the last six years.
All these declines raise serious concerns as to whether or not China is experiencing the deflation of a real estate bubble similar to what happened there in 2011. The central government is taking steps to prevent this real estate slow down by loosening the typically tight mortgage loan criteria; down payments for residential properties are usually upwards of 30% in China. These loan criteria tend to have a negative effect on housing sales, but they also mean that if there is a market crash the average Chinese homeowner will have much more equity and much less debt than their American counterparts circa 2007. The Chinese government is at a crossroads, they must decide between spurring housing consumption by further lowering loan criteria or letting the market self correct with the potential for a crash.
Sources:
Cao, Bonnie. “China Home Prices Fall in Most Cities on Weak Demand.” Bloomberg.com. Bloomberg, 18 Aug. 2014. Web. 24 Oct. 2014. <http://www.bloomberg.com/news/2014-08-17/china-home-prices-decline-in-majority-of-cities-on-weak-demand.html>.
“Chinese Home Prices Fall 1.3 Pct Y/y in Sept.” Reuters. Thomson Reuters, 23 Oct. 2014. Web. 24 Oct. 2014. <http://www.reuters.com/article/2014/10/24/china-property-prices-idUSENNEA60TJ20141024>.
Fung, Esther. “Despite Sales Bump, All Is Not Well in China’s Real Estate Market.” China Real Time Report RSS. Wall Street Journal, 21 Oct. 2014. Web. 24 Oct. 2014. <http://blogs.wsj.com/chinarealtime/2014/10/21/despite-sales-bump-all-is-not-well-in-chinas-real-estate-market/>.
The Miller book has some on this issue, the Adams and Ma book much more. It’s important, so we should keep watching.
This appears to be an illustrative example of what occurs when credit is not freely (but fairly and with credit responsibility backups) available to consumers. Surely a wider availability of credit to working class consumers would help revitalize China’s housing market