China Property Set for `Healthy' Correction, Not Collapse, Jones Lang Says
July 6 (Bloomberg) -- Kenneth Rogoff, professor at Harvard University and former chief economist at the International Monetary Fund, talks with Bloomberg's Susan Li about China's real estate market and economy. Rogoff, speaking in Hong Kong, also discusses the outlook for European banks, the global economy and stimulus policies. (Source: Bloomberg)
China’s home prices are set to fall as much as 20 percent in a “healthy” correction, said Michael Klibaner, head of China research at Jones Lang LaSalle Inc.
China’s property boom is “cash-driven” rather than “leverage-fuelled,” which means there’s only a low chance of the type of forced selling that exacerbated the U.S. housing market collapse, he said in a Bloomberg Television interview today. That view contrasts with Harvard University’s Kenneth Rogoff’s prediction yesterday of a “collapse” in China’s property market that will hit the nation’s banking system.
Property prices in 70 Chinese cities rose 12.4 percent in May, the second-fastest pace on record, heightening concern a bubble is forming in the nation’s housing market. Shanghai’s new-home sales fell 70 percent from a year ago in June, Changjiang Securities Co. said in a report yesterday, adding to signs government measures including increased interest rates and down payments on second mortgages are cooling the market.
“We actually expect a very healthy correction, something in the order of 15 or 20 percent in terms of price correction,” Klibaner said today. “But we don’t see any reason why there will be a risk of a crash at the moment.”
Jones Lang LaSalle is the second-largest publicly traded commercial property broker.
As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” said Rogoff, speaking in an interview with Bloomberg Television in Hong Kong yesterday.
Property Crackdown
“You’re starting to see that collapse in property and it’s going to hit the banking system,” said Rogoff, 57, the former chief economist of the International Monetary Fund.
Klibaner’s forecast echoes the view of Nomura Holdings Inc. economists Sun Mingchun and Sun Chi, who said China’s average home price may fall as much as 20 percent in the next 12 to 18 months. That won’t have a big impact on China’s economy, they said in a July 5 report.
Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.
The efforts have contributed to a slump in real-estate sales and sent an index tracking 34 Shanghai-listed developers down almost 30 percent in 2010, even as prices keep rising.
Sales Slump
Shanghai’s sales of new homes fell 57 percent in the first six months of the year on government measures to cool the property market, Shanghai Uwin Real Estate Information Services Co. said today.
A total of 3.57 million square meters (38.4 million square feet) was sold in Shanghai’s primary market for the period, compared with 8.24 million square meters a year earlier, Uwin said. The first-half sales were the lowest in five years.
New home prices in the first half rose 48 percent from a year earlier to 21,008 yuan ($3,100) per square meter, according to the Uwin report.
“Shanghai property prices are likely to head downward further in the coming months as sales continue to decline and the government showed firm determination to curb the prices rises,” said Lu Qilin, a Shanghai-based researcher at Uwin, adding expect prices to fall 10-15 percent in the second half.
--Zhang Dingmin, Susan Li, Kongho Chua, Jing Jin. Editors: Malcolm Scott, Tomoko Yamazaki
To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net
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