Predictions of China's property bubble bust premature

From: Xinhua Updated: 2014-02-27 10:17
text size: T | T

BEIJING, Feb. 26 -- China's property market might have outgrown its boom days, but predictions of an imminent property bubble burst and economic crash are premature.

Public anxiety was ignited on Monday by media reports of real estate developers lowering prices in east China's Hangzhou and Changzhou cities and a commercial bank's decision to halt some property financing business.

Real estate-related shares plunged by over five percent on Monday, a predictable fear-driven overreaction to online and foreign media reports about the so-called crash of China's property market.

However, the moves by property developers and banks should not be over-interpreted.

Their decisions are rational precautionary reactions toward market changes and business operation problems and only indicate the real estate market differentiation in China's cities.

It is fair to say the property markets in some cities, especially third- and fourth-tier cities, are burdened with overcapacity and face mounting debt default risks. Proactive price and policy changes are actually good for their sustainable development.

But for megacities like Beijing and Shanghai, the property market will likely remain robust as real estate developers keep grabbing land at record high prices and people seeking better jobs and lives continue to pour in.

The fuss is not new, given the non-stop hype about China's economic hard landing, but the facts tell a clearer story.

January and February always see lukewarm property purchases due to China's Spring Festival. The latest data show housing prices in most Chinese cities still kept rising in January, albeit by a smaller margin.

Meanwhile, China's urbanization rate is currently only over 53 percent, still far behind developed countries, which usually boast urbanization rates of over 70 percent. The continued urbanization drive will boost demand for quality real estate projects.

Therefore, it is unreasonable to predict an overall property market crash over regional jitters. The government should guard against the possible financial risks that market fluctuations may create and take measures to address housing problems at the local level.

Most importantly, it should ring the alarm for profit-seeking property developers and GDP-fixated local governments to rein in irrational real estate development and proactively adjust policies before it is too late.

Qiushi Journal | English Edition of Qiushi Jounrnal | Contact us | Subscription Copyright by Qiushi Journal, All rights reserved