China’s Property Market Braces for the Bear

(…)  After the Chinese government enacted a raft of measures to cool real-estate speculation, sales volume is slowing markedly. (…)

Beijing is "hitting the market really hard, coming in with double barrels," Ronnie Chan, chairman of Hang Lung Properties(ticker: 0101.Hong Kong) and Hang Lung Group (10.Hong Kong), said last week in an interview in New York. Prices could decline "by 20% to 30%, or even more" from current levels, says Chan, adding that "I hope [the market] won’t go down by 50%, but it’s anybody’s guess." In the downturn, in 2008, residential real-estate prices fell by up to 40% in the Pearl River Delta.(…)

Goldman Sachs and Credit Suisse reduced their forecasts last week for Chinese real-estate-company earnings, and predicted 30% price declines on residential property. Sentiment is so poor that Hong Kong-based Swire Properties recently pulled its $2.7 billion initial public offering.

Credit Suisse analyst Jinsong Du reports that local property brokers expect 20% declines in the secondary market. While prices "are largely unchanged," sell-through rates fell to 20% and 40% early this month, from 60% to 70% previously. Price cuts could start in the second half.

Chan expects property-price declines to cool consumer sentiment and the Chinese economy, although a high savings rate will mitigate some fallout. "There will be a slowdown," he says. "This will put pressure on balance sheets of individuals and companies. Real-estate companies will have a hard time. The natural expectation is it would reduce gross-domestic-product growth. The wealth effect is a factor." Real-estate investment is 12% of GDP.(…)

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