S&P warn that real estate bubble is lurking in China
A sharp pickup in real state prices in China is a key risk to the nation’s economic growth and is leading to a classic bubble situation, according to Standard & Poor’s.
It is forecasting that prices will rise 10.3% this year to an unsustainable level and they will need to come down if they are not to affect economic performance.
‘The property market looks darn good, it’s been going up, and this is a classic bubble. Prices are rising to an unsustainable level,’ said David Wyss, chief economist at S&P.
The property sector contributes about 20% to the Chinese economy through real estate investments and related industries, according to Citic Bank International. Since April, China has restricted pre-sales by developers and curbed loans for third home purchases to try to cool the market after excess liquidity stemming from record credit growth last year buoyed demand.
But property prices are showing signs of slowing. They have gone up 10.3% from a year earlier in July, the slowest pace in six months.
The Shanghai Composite Index, which tracks the bigger of China’s two main stock exchanges, fell 21% this year. Investors are concerned that slowing growth will be shown in forthcoming economic data, according to Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai.
‘While China’s growth trajectory remains solid, we expect some softening in the coming quarter largely on the back of uncertainties in Europe,’ Wyss said. Rising commodity prices may also constrain the nation’s economic growth, he added.
Meanwhile, in Hong Kong prices for luxury property and land seem to be immune to property cooling measures. The government sold a residential site for HK$1.29 billion ($165 million) at, beating estimates and signalling the luxury property market is withstanding measures to make homes more affordable.
The land in the Kowloon Tong district, set a per square foot record for the Kowloon Peninsula of HK$16,587, according to real estate broker Midland Holdings.
Prices have exceeded estimates in both land auctions held since Hong Kong tightened mortgage rules and promised to boost supply earlier this month to cool the market.
Cheung Kong Holdings, controlled by Hong Kong’s richest man, Li Ka-shing, paid more than estimated for a site in Ho Man Tin district, near Kowloon Tong, four days after the government announced measures to cool the market on August 13.
