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China housing boom may have hit ‘potentially precarious peak,’ a Harvard-Tsinghua working paper says

  • A 20 per cent fall in real-estate activity could lead to a 5-10 per cent fall in GDP, even without amplification from a banking crisis, paper shows
  • Housing is still unlikely to be the trigger for an imminent financial crisis due to regulatory protections

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A bird’s-eye view of Xiancun, or Xian village, an urban village in downtown Guangzhou city, southern China’s Guangdong province, where prices have risen 10 times over the past 10 years. Photo: Imaginechina
Bloomberg
China’s real estate sector may have peaked and will likely become a drag on growth during economic shocks such as the current pandemic, a recent report co-authored by Harvard University’s Kenneth Rogoff argues
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The decades-long housing boom has causes both prices and supply to be misaligned and the market may have hit “a potentially precarious peak,” according to the working paper published by Rogoff and Yuan Yuanchen of Tsinghua University in Beijing.

Housing is still unlikely to be the trigger for an imminent financial crisis due to regulatory protections like high down payments, they wrote.

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Both the household income and demographic growth that supported the boom have slowed recently and the downward trend is expected to continue, according to the paper, which was published by the National Bureau of Economic Research in the US.

China’s economy rebounded 3.2 per cent in the second quarter as measures to ease pandemic restrictions helped revive economic activity. Gross domestic product saw a historic slump in the first quarter following the coronavirus outbreak that was first detected in Wuhan in central Hubei province.

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