China Research

Finally, we can read almost daily that there is an increasing price pressure on Chinese property markets. I would not doubt this fact as such. I have seen with my own eyes the substantial number of Chinese residential buildings that were more or less completely dark in the evening. Either many apartments were not sold – or they were bought for mere speculative reasons without physical occupancy of these places. But I have no idea about the contribution of these two price-squeezing factors to the price pressure currently taking place in Chinese cities.

So, what about the future and risks coming from the real estate sector in China? I would say that we are facing another of these Chinese statistical and policy question marks. The fact that Chinese property prices are under pressure is even confirmed by official statistics. It is also obvious that Chinese residential developers many times are offering substantial price cuts. Another interesting signal lies in the decision by quite a number of cities to reduce existing restrictions on the purchase of apartments. And China shows continuous weakness in economic growth.

We should also be aware of the unclear issue concerning the number of real estate developers that may be in troubles and the banks’ real exposure when it comes to more critical lending to the real estate sector. In these respects, transparency is not really existing (which – by the way – mostly was not the case either before the eruption of the well-known real estate crises in our part of the world).

In my view, the current real estate concerns are more a short-term or medium-term issue than a long-term issue. The urbanization of China will continue and create a strongly rising demand for apartments in particularly the metropolitan areas. Thus, the risk analysis for the forthcoming 5-10 years or so will be more difficult.

My best guess is that Chinese authorities would intervene if any serious real estate crisis was to happen. If such interventions really would help is a very different question – to a high extent depending on the degree of the deregulation of the capital account.

Here we may have one of the major risks if Chinese decision-makers were to deregulate cross-border financial movements too quickly.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

Back to Start Page