China’s home prices will fall by as much as 30 percent in the next year, driven by the government’s housing curbs, according to Barclays Capital Research. As part of Barclays “China: Beyond the Miracle” series, here we present their latest report (part 3) titled “Bubble Defaltion, Chinese Style“.
– Chinese property markets already exhibit significant risks of a bubble, according to various conventional measures.
– Past property booms were supported by strong income growth, steady urbanization, favourable demography, limited investment alternatives and healthy household balance sheets.
– These factors, however, may turn into negatives in the coming years, generating significant risks of a bubble bursting.
– Restrictions on housing purchases are only a second-best policy option. But they have been effective in lowering property prices and reducing future risks of a bubble bursting.
– We expect property prices to decline by 10-30% during the current cycle, which should not lead to systemic crisis or collapse.
– Households are not likely to be forced to sell, while large developers could survive the downturn. But small developers will probably suffer from significant financial stresses.
– Policy may be adjusted if the average price decline approaches 20%. And the longer-term agenda is set to replace restrictions on housing purchases with property taxes.
– Weakening property markets should slow investment significantly, impacting the global commodity market. But Chinese consumers are likely to stay relatively more resilient.
Watch out, World!