China's Property Market Slowing Down Sharply

Further evidence is emerging that China’s property market has begun to slow, as suggested in the chart below (see: China’s Property Market Freezes Up”). As discussed before, the Chinese government implemented several measures in April, including raising minimum downpayments on second homes to 50%, to help cool the market. On average, the number of residential property transactions in the four weeks after the curbs were unveiled is down 40% compared with the four weeks before the measures, according to figures covering 24 major cities from real-estate consultancy Soufun.com. The sharp slowdown comes as Beijing considers additional measures to push down prices, including imposing new taxes on residential property (though I suspect this will be reconsidered in light of the sharp slowdown already impacting the market).

Similar to the beginning stages of the US property bust, real estate agents and local investors are dismissing the slowdown as a short-term phenomenon. While they recognize that business has slowed, one gets the sense they view the dip as a buying opportunity. This quote from a Chinese real estate agent captures the complacency of the average Chinese person about the potentially serious consequences of a protracted property bust.

“What’s really dampened the market is the uncertainty. That overhang is what’s driving everyone to wait,” said Kevin Yung, executive vice president of IFM Investments Ltd., which runs the Century 21 real-estate agency franchise in China. “We think this could last another three to six months,” he said, a rough forecast shared by other industry executives. “We think prices are going to come down, probably by about 20%, but it will happen over time because this adjustment is driven more by policy than demand” he said.