China's Property Problems
“According to the International Monetary Fund (IMF), the industry as a whole accounts for an even larger 15% of 2012 GDP, 25% of fixed asset investment, 14% of employment in urban areas and 20% of bank loans in the economy.” - By James White, Analyst, Colonial First State
Below summary from Anthony O'Brien
The growth in China’s property sector has been substantial in the course of the last 15 years. This has been fed by the country’s rapid urbanisation and, more worryingly, by speculation as households seek higher returning assets.
In 2014, however, there has been a substantial decline in prices and, increasingly, fixed asset investment in property.
A number of signposts point to a property slowdown. Sales, for example, are a strong indicator of future activity levels – and in China, property is usually pre-sold to allow developers to finance construction. There was a steep rise in sales after the financial crisis, followed by a period of weakness, before a period of solid sales through 2012 and much of 2013.
This strength has since turned to weakness, with little evidence that there is a coming turnaround. Yet some of the private data, however, does suggest some strength in large cities in recent months.
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Frequently Asked Questions about this Article…
The property sector is highly significant to China's economy, accounting for 15% of the GDP, 25% of fixed asset investment, 14% of urban employment, and 20% of bank loans, according to the International Monetary Fund (IMF).
The growth of China's property sector has been driven by rapid urbanization and speculation, as households seek higher-returning assets.
Indicators of a slowdown include a decline in property prices and fixed asset investment, as well as a decrease in sales, which are a strong predictor of future activity levels.
In China, property is often pre-sold to finance construction, so sales levels are a critical indicator of future construction activity.
While overall weakness persists, some private data suggests there has been recent strength in large cities.
After the financial crisis, there was a steep rise in property sales, followed by a period of weakness, and then solid sales through 2012 and much of 2013.
Speculation is concerning because it can lead to unsustainable growth and potential market instability as households invest in higher-returning assets.
Urbanization has been a major driver of growth in China's property sector, as more people move to urban areas, increasing demand for housing and infrastructure.
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