Real Estate Investment Slows as Govt Tightens Credit

Despite stories of rocketing prices, China’s enthusiasm for real estate — at least from the developer perspective — may be cooling off. Analysts now predict that investment in China’s property industry may only increase 15 percent in 2014, a major drop-off from the 19.8 percent expansion that the sector enjoyed in 2013.

In a report in the South China Morning Post (SCMP) today, Wei Yao, China economist at Societe Generale in Hong Kong, noted, “Further investment growth deceleration seems quite certain to us, which is, however, a necessary step towards a more balanced economy.”

The reason for this cooling down of investment, however, is not the policies that the government has put in place to restrict consumer demand by lowering down-payments and raising fees, but a credit clampdown that has left developers scrambling for financing.

In the same SCMP article, Societe Generale’s Yao pointed out that, “Several borrowing channels have already started to cool, responding to tight liquidity conditions. Policymakers are poised to rein in shadow banking and cap local government debt growth.”

During 2013, the Xi administration was understandably wary of slowing down the real estate industry, which by some measures accounted for 15.1 per cent of China’s 2013 GDP. However, the property industry’s recent growth in the major cities — with Shenzhen and Guangzhou reporting 20 percent home price growth in December, has convinced many that prices have created a dangerous bubble.