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Opinion | China’s property market is at risk of an overcorrection, not oversupply
- There is no risk of China’s property sector woes spreading into a financial crisis but there is a policy-induced housing crisis and restrictions must be further eased
- The property market must be stabilised to restore public confidence and spur private consumption, so economic growth can reaccelerate.
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A Chinese former official made headlines last September by saying that China had so many vacant homes that even its 1.4 billion population cannot hope to fill them all. Estimates suggested there were enough vacant properties to house as many as 3 billion people.
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If true, China’s housing market is doomed. But, to paraphrase Mark Twain, reports of the market’s demise are an exaggeration.
According to the national statistics bureau, China has built 14.4 billion square metres (155 billion square feet) of saleable homes – excluding self-built homes such as in rural areas – over the past 30 years. In 2020, the per capita urban living space was 38.6 square metres, meaning that in three decades, China had built enough housing for 370 million people, just 40 per cent of its urban population of 920 million. How many empty homes can there be?
There are two signs of significant oversupply in residential markets, according to economist Gao Shanwen, who based his work on data from economies including Japan and the United States.
The first is a prolonged contraction in transactions for resale homes. But in China last year, according to Beike Research Institute, resale home transactions surged, rising by 44 per cent in terms of floor space sold and by 30 per cent in transaction value.
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The second is when investments in residential property development represent more than 7 per cent of a country’s gross domestic product. In China, this ratio hit about 12 per cent in 2013 but has fallen since, and is expected to be around 5.5 per cent this year.
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