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Prepare for pop of property bubble

2014-05-05 11:25 China Daily Web Editor: Qin Dexing

Signs have emerged that the curtain is falling on the decadelong golden period for China's real estate sector.

The average price of newly built homes in China's 70 major cities rose 8.7 percent year-on-year in February, slightly lower than the 9 percent growth in January, according to data from the National Bureau of Statistics.

Compared with 62 cities that saw a price increase in January, the number decreased to 57 in February and the margin of the average price increase declined from 1.2 percent month-on-month to 0.7 percent. The increase in the average house price in Beijing, Shanghai, Guangzhou and Shenzhen, the four first-tier cities that witnessed a frenetic price increase last year, fell below 20 percent year-on-year.

Along with the slowing price increases is the drastic drop in home sales. In Beijing, only 2,221 new homes were sold in February, a record low since 2007. The February volume for sales of secondhand houses was 5,441, decreasing by 38 percent from January and 46.3 percent from a year earlier, a new low in 24 months.

Some recent negative news on the housing sector has caused market worries. Vanke, a leading real estate developer in China, recently brought to the market one of its residential developments in the south of Beijing at an average 21,000 yuan ($3,370) per square meter, far below the previously anticipated 26,000 yuan. As the weather vane of China's housing prices, the price decline in Beijing is seen as signaling a possible price decline across the country.

The collapse of the fund chain floated by a developer in Zhejiang province has further aggravated pessimism over the rosy housing market. The drastic fall of the yuan's exchange rate against the dollar in February has also caused widespread concern over the negative impact caused by the possible exodus of international capital from the Chinese housing market.

There is no doubt that a chilly autumn is coming for China's housing market.

Many analysts had previously concluded that there will be at least another 10 years of golden time. Qiu Baoxing, vice-minister of housing and urban-rural development, said on the sidelines of the annual sessions of the top legislature and top advisory body that China's housing sector is unlikely to encounter a big crisis in 10 years. It is believed by many that the housing market will still be China's fastest-growing sector before the end of its urbanization.

Compared with such a view, some are more wary, but they still hold an optimistic outlook on the housing markets of first-tier cities.

However, the lackluster price increases in Beijing and other first-tier cities in recent months and their slackened sales mean that the prospect for China's housing market is not that optimistic.

The slowed price increases and the drastic drop in sales this year have taken place at a time when no explicit housing regulations are being formulated. The government even refrained from taking administrative measures after the housing market experienced an unreasonable price increase last year, to leave the settlement of the price issue to the market.

A series of factors, including a loose monetary policy, strong housing demand and supply insufficiency, high-speed economic development, local governments' excessive dependence of their fiscal revenues on land sales, as well as the influx of international capital betting on the yuan's appreciation, have altogether bolstered the soaring of domestic home prices over the past decades.

However, all these engines have started losing power since the start of this year. The confirmed phasing out of the quantitative easing policy by the US Federal Reserve will inevitably accelerate the outflow of international capital from China.

The combined influence of these factors has increased the possibility of a decline in house prices this year. The fast price increases following a series of stimulus measures adopted after the 2008 global financial crisis have tightly bound China's economy to the housing market.

The author Ma Guangyuan is director of the Private Economy Research Center under Renmin University of China. 

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