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“. 

Highlights below:

– 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!

Full report can be downloaded here.

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