Is a housing crash imminent in China? China bears would think so. Home prices in major Chinese cities like Beijing and Shanghai are slipping, and transactions are taking a nosedive. The real estate market has entered what is arguably the deepest correction since the 2008 financial crisis, causing fears of a hard landing that might also drag down the entire Chinese economy.
So how much trouble is the real estate market actually in? According to the China Index Academy, an independent property research organization owned by real estate portal SouFun, housing prices in the 100 cities it monitors dropped 0.5% in June from the previous month, greater than the 0.32% month-on-month decline recorded in May (the first price downturn in 23 months).
But falling prices is not the most alarming signal, at least not yet (compared with the same period last year, prices were still higher in most major cities). It’s the distinct drop in transaction volume that is making economists nervous. As per SouFun’s data, transactions across major cities fell 19% year-on-year in the first six months of 2014, while new home transactions in Beijing and Shanghai fell drastically by 48.6% and 32.8% respectively, according to other research firms.
“That’s an indication that the demand is small, and so eventually prices will move too,” says Liu Jing, professor of accounting and finance at Cheung Kong Graduate School of Business, who closely follows China’s real estate market. “You can already see prices come down in several cities.”