China's Falling Home Prices Cast Another Shadow Over Economy
Comment of the Day

October 20 2021

Commentary by Eoin Treacy

China's Falling Home Prices Cast Another Shadow Over Economy

This article from Bloomberg may be of interest to subscribers. Here is a section

There are “individual problems” in the real estate market, but the risks are controllable overall, Vice Premier Liu He said at the same event, according to the official Xinhua News Agency. Reasonable funding needs in the sector are being met, Liu was quoted as saying.

Some analysts expect the current real estate slump to be less harsh than previous ones because inventories remain relatively small. Developers have been more rational about building projects in coastal cities where demand is higher, said Chen Long, a partner at Beijing-based consultancy Plenum.

“The relatively low stock of unsold housing limits the risk of a major downturn,” Oxford Economics said in a note on Wednesday. “We think the most likely scenario is a contained short-term downturn.”

Still, any recovery will be difficult until home values resume rising. 

“If property prices stop growing, we won’t buy,” said Jack, a tech worker in Shenzhen who didn’t want to be identified by his surname for fear of reprisals from his company. “Right now, I’ll sit and watch.”

Eoin Treacy's view

The Federal Reserve is sensitive to equity prices because it is the most favoured asset class of US citizens. For the same reason the ECB is more concerned with bond prices than other asset classes. In China the vast majority of savers have some exposure to property prices so it is reasonable to ask how much pain can the government tolerate before they bend to market pressure?

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