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Friday 22 August 2014

Experts play down bust fears in China but doubts remain

Scott Lanman

Published 25/05/2014 | 02:30

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Eastern Promise: Experts are confident that real estate will contribute to Chinese growth
Eastern Promise: Experts are confident that real estate will contribute to Chinese growth

CHINA'S biggest homebuilding slump in at least four years isn't enough to dissuade a majority of economists from predicting real estate will still contribute to 2014 growth as property controls will be eased, according to a survey.

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While 12 of 18 economists say China has some national oversupply of housing, only seven say the market is in a bubble state countrywide, according to the survey conducted from May 15 to May 20.

Half see bubbles in some cities, and a majority believes the loosening of restrictions on home purchases and loans will be limited to a regional level.

New construction has fallen 22pc and sales have slumped 7.8pc this year, testing the government's four-year commitment to curbs targeted at making homes more affordable and its reluctance to enact broader economic stimulus. The slowdown's depth will have implications for everything from demand for Australian iron ore to land sales that help local governments repay their $3trn of debt.

"China won't fully lose the engine, but the engine will roar less than in the past and will be a more moderate supporter for growth," said Louis Kuijs, Royal Bank of Scotland's chief Greater China economist in Hong Kong. He formerly worked at the World Bank.

Central bank Governor Zhou Xiaochuan said China may have housing bubbles in some cities, an issue that's difficult to resolve with a single nationwide policy.

The economy "can still manage something around a 7.5pc growth rate," Zhou said in an interview, referring to the nation's expansion target for 2014.

A manufacturing gauge signalled the economy is stabilising after the government announced tax breaks and faster railway spending to support growth.

The preliminary purchasing managers' index for May from HSBC and Markit Economics unexpectedly rose to a five-month high of 49.7, approaching the expansion-contraction dividing line of 50.

UBS has estimated the real-estate industry accounts for more than a quarter of final demand in the economy when including property-generated needs for goods, including electric machinery and instruments, chemicals and metals.

Five of 17 respondents said the property market will make a net contribution to growth this year of one to two percentage points, while four said it would add less than one point and one analyst projected more than two points. Four people said there would be a drag of one to two points and two projected a subtraction of less than one point.

Next year, 10 economists see a net contribution to growth, while five expect a drag. The nation's housing market won't crash like that of the US, Japan and Hong Kong, the official Xinhua News Agency said in an article last week that called people forecasting such an outcome "doom-mongers." China will have strong housing demand because of continuing urbanisation, speculative buying is less prevalent than it was in Hong Kong and mortgage debt as a proportion of GDP is lower than it was in the US, Xinhua claimed.

"China's urbanisation process is far from being over," said Xu Gao, chief economist with Everbright Securities in Beijing, who formerly worked for the World Bank.

"The housing market is not seeing any structural turning point but rather suffering from a cyclical downturn, and the market can be brought back to life when policies become appropriate."

That the property market is undergoing a slowdown is of little dispute. Floor space of new residential buildings under construction fell 23.8pc last month from a year earlier, the steepest drop in figures going back to April 2010, according to data compiled by Bloomberg.

April home prices rose in the fewest cities in a year and a half, government statistics show. While a majority of respondents said China has an oversupply of housing, three said the current national supply is in balance with demand, even if some cities are facing issues, while two said the supply is too small to meet demand. (Bloomberg)

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