China's runaway property market has been cooled by several government initiatives. Tighter credit guidelines and other measures by the government seem to finally be having an impact. Last year the Chinese government raised the interest rate six times. Additionally, measures were taken to increase the minimum reserve ratio of commercial banks along with tax changes that were meant to get the economy back in check. Before these initiatives, property prices in markets like Shenzhen were up 20%. Some properties increased in value as much as 50%, with property at the upper end in high demand. All of this growth was reported by June 2007. The following six months in 2007 brought steady decline.
China's larger property developers are beginning to offer steep discounts as incentives to keep sales from plummeting. Some companies have begun offering discounts over 5% to rekindle consumer interest. These discounts may be only the beginning. Land prices in cities like Shanghai are also beginning to fall. Falling property prices should occur within the next two years. Industry insiders state that the cooling economy has caused about 15,000 people to lose their jobs and at least 30% of the property agencies will not last through spring 2008. Large property developers are able to slash prices and still operate until prices stabilise. The small to medium sized developers will find it more difficult.
Bearing all this in mind, it is clear that the property market will eventually stabilise. A less volatile and stable market is a much better environment for overseas property investors to venture into. This will allow healthy development as China's property market matures. The higher interest rates imposed by the Chinese government will reduce demand and lessen the strain on the limited supply. With the exit of smaller less competitive property agencies, China's real estate market will be better equipped to handle China's booming economy.
