China will spend over $4.8 billion in building low-rent housing. (Photo : Getty Images)
The boom of China's housing market is now cooling manifested in reports of property prices declining, leaving everyone worried about its effects on the country's economy.
According to Reuters, the price of houses in the biggest cities in China is losing its steam, leaving many worried that one of the country's economic drivers are about to sink.
However, analysts believe that the slowdown on the price increase of homes in the Middle Kingdom is a sign that the country's real estate property market has already reached its peak and has no way to go but down.
Housing Market in China
A report from ABC revealed that 51 out of the 70 cities in China surveyed by the National Bureau of Statistics (NBS) reported gains in prices.
While such number is still remarkably high, the outlet noted that it is significantly lower from its peak of 65 in April and 55 in June. Furthermore, 16 cities reported a price drop while three others remain unchanged as NBS notes how the housing price growth "continued to abate."
Analysts explained that since the housing market is one of the key drivers that push the second largest economy in the world towards its remarkable growth in the past years, the slowdown may have a significant impact on the Chinese economy,
"We believe the housing market is cooling down from the rebound in the first half. Property investment will continue to drop, which will put more pressure on the economy in the future," Nomura economist Wendy Chen told Reuters.
A Welcome Change for Policymakers
According to national statistics, 70 major cities in China saw a 7.9 percent increase in price in July as compared to the previous year.
While this may sound bad for those who invest in real estate in China, ABC said it might be a welcome change for policymakers since it would give them the chance to augment the alarming property bubble that is looming over the country.
"The recent policy tightening could curb rapid home price growth. Local policies will see further divergence as surging home prices and land costs trigger more tightening rules," explained Shanghai-based analyst David Yang of the UOB Kay Hian Investment.
However, some analysts believe that some policymakers are making the situation worse with the government intervening with the housing market.
"With development focused primarily on those regions already suffering from excess capacity, China is playing a dangerous game," explained Fathom Consulting in a report.
