Two sides of the property coin
Opinions are split on China property. Some point to signs of oversupply and predict an epic sell-off, others point to developers' strong profits and say all is okay. Two experts argue opposing views
How worried should we be about the downturn in the mainland property market? Talk of oversupply abounds, as do dire forecasts of a collapse in property investment robbing the economy of its main domestic engine of growth at a time when the external engine is sputtering.
Residential real estate has been an important source of growth in recent years - accounting for almost 13 per cent of GDP. A sustained decline in housing investment would deal a blow to growth.
But collapse seems unlikely in a country where the fundamentals for the property market remain so positive.
The fact that we can talk of a market at all is itself significant: 20 years ago, there was no market for real estate and even today the secondary market is still in its infancy. Recent data has certainly been weak: developers' sales are down 9 per cent year to date, prices are falling in many cities, and new housing starts are down by 25 per cent.
But we have seen this before: in 2008 and 2011, market conditions were worse. And in those cycles, the market worked the way markets are supposed to: faced with oversupply, developers cut construction and prices.
In the mainland's tier-1 cities, price cuts of 20 per cent were enough to clear inventory within a couple of months. And the cutback in new construction? It sowed the seeds for rising prices a year or so later and renewed talk of a bubble. With each cycle, property prices rose more slowly than incomes. Property is becoming more affordable on the mainland as modern housing becomes more available.