China’s Real Estate in Gloom

According to China Daily,

Prices of residential housing in China may shrink by as much as 50 percent in the next 10 years, a top property researcher has predicted.

“House prices in big and medium-sized cities may collapse at any time, and insurance funds should avoid entering this sector unless housing prices are adjusted,” said Ling Xiuli, a senior researcher with PICC Asset Management Company Ltd, at a seminar in Tsinghua University on September 24.

Ling believes that it looks gloomy for insurers investing in the real estate market at present, as “the house price to income ratio in China is unprecedentedly high in world economic history, and the housing price bubble has hit its peak.”

Xinhua Finance Limited, China’s premier financial information provider, has also recently released a report on “Credit Risks of China’s Real Estate Sector” according to Market Watch.

The report explains that China’s real estate sector has benefited from the nation’s strong economic growth and favorable government policy since the beginning of economic reforms. As a result the industry has for a long period of time enjoyed a remarkable expansion. But with the slowing of the economy and the tightening of credit, Xinhua Finance believes that the recent liquidity problems of the industry are the beginning of a process of unfolding credit risks associated with the nature of the industry that have accumulated over time. Xinhua Finance indicates that the adjustment by China’s real estate industry to the on-going depressed environment is likely to extend over a significant period of time and suggests that investors exercise caution in considering the credit risk implications for debt securities issued by the real estate industry.

[…] Regarding the current situation, Dr. Chung-Hsing Chen, vice president and head of ratings and research for Xinhua Finance, stated that “the domestic real estate industry is very fragile and highly fragmented, and most developers do not have adequate experience dealing with a down-turn in the economic environment. With relative weak financial strength and management expertise, some developers are bound to face critical challenges when there are major government policy changes or significant market adjustments.”

In response to the situation, the government is considering to ease its strict control over the property market according to China Daily.

The China Real Estate Association (CREA) recently called on the government to shift its policies from “strict” to “moderate” control on the property market, in a proposal to the State Council.

According to Zhu Zhongyi, vice president and secretary general of the CREA, the proposal appealed for local governments to be allowed to help the property market at their discretion, lowering taxes in real estate trading, encouraging housing needs for improving living conditions, and strengthening the industry’s early warning system.

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