Cao Yuansheng Chief Economist of Bank of China
A report issued yesterday by one of China’s four largest banks said that the country’s real estate market is at an inflection point, but dismissed the likelihood of a hard landing in the sector, or for significant knock-on effects in the larger economy.
The “2014 Third Quarter Economic and Financial Outlook Report” issued by the Bank of China acknowledged the many challenges facing the country’s real estate market this year, including tight credit, higher interest rates, and newfound consumer fears of a downturn in the sector that accounts for more than 15 percent of the country’s GDP.
The report found that these many challenges have created a market inflection point signified by decreases in prices and sales volumes, which have in turn resulted in slowdowns in investment and decreased demand for new land.
Bank of China Doesn’t Fear a Real Estate Crash
While acknowledging the downturn, the bank’s economic experts did not foresee a crash as imminent. “A hard landing in China’s real estate sector is not likely,” said Cao Yuan Zheng, Bank of China’s chief economist. Cao explained that, given the minimum down payment requirement of 30% on consumer mortgages, as long as prices do not fall more than 30 percent, then existing housing loans are still valuable and buyers would be unlikely to walk away from their purchases.
The economist did acknowledge that prices had fallen more than 30 percent in some cases, but indicated that this represented a relatively small sliver of home ownership nationwide.
Property Downturn to Have Limited Economic Impact
Speaking about the potential impact of China’s housing downturn on the country’s broader economic picture, Bank of China senior researcher, Zhou Jingtong said that the main impact of the market inflection would be to shift spending toward consumption.
“With the falling (housing) prices, disposable income will be redirected to other areas, such as consumer products, and this will likely promote the growth of spending in other areas,” Zhou said. likely to promote the growth of spending in other areas. ”
Looser Credit and Rule Rollbacks on the Way
The bank’s report predicts that in the second half of 2014, there may be adjustments in legal and credit policies that would ensure a soft landing. Specifically, the Bank of China experts foresee that first-time home buyers are likely to get speedier access to credit, and restrictions on homes sales will continue to be adjusted in second and third-tier cities.
State-owned Bank of China is one of the country’s four-largest banks, and one of the world’s largest by capitalization.
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