Experts Say China's Housing Market to Slide Further

June 25, 2008 Updated: June 25, 2008

Mr. Yan Lingru, formerly a realtor in China, sent this warning message during an interview with Sound of Hope on June 19: “A bubble has basically been formed in China's housing market.” Chinese political and economic commentator Mr. Chen Pokong later emphasized that China's housing market is a bubble market, and a sharp drop in prices is expected.

China's stock market has slumped sharply, and its housing market is even more treacherous. “China's housing market is an industry with huge profits. It is because investment funds, including domestic and foreign hot money, kept flowing into China's housing market and pushed the prices too high, which eventually led to a hidden bubble,” said Mr. Chen.

Chen said that this kind of bubble is not normal, and that it will burst if foreign capital withdraws, big capital flows, or if the market's purchase power weakens. Consequently, a big fluctuation and big price drop are expected to happen in China's housing market.

“The greatest magnitude of fluctuation has not yet developed. Once it sets in, the housing market bubble will burst. Once the bubble is burst, it will bring major impact to China's economy since the housing market is a major supporting component in China's economy. This kind of impact is not to be underestimated because it will also weaken other industries like the capital markets and the manufacturing industry,” said Chen.

Mr. Yan Lingru, currently a California resident, thought that a bubble had basically been formed, “Chinese banks, including the five major banks, have been suffering from bad debts in housing mortgages. There are neither standardized policies, nor standardized monitoring mechanisms. Nor is there a sound loan processing procedure, and administration power also interferes with the market operation. The loan director is the one who is calling the shots. China is already in a housing bubble.”

“The housing market is bound to go down. People won't be able to generate any sales unless they lower the price. There are so many unoccupied houses, and many houses have grown weeds from staying on the market for sale. New houses continue to be placed on the market, while bad, old houses remain on the market. As a result, bank loans are tied up in those unsold houses.”

Mr. Yan added, “Some unsold houses were taken over by banks and put on auction. And some were sold at low prices, so the investors could save themselves. These investors are therefore in dire shape.”

Since the earthquake hit Sichuan on May 12, housing sales in different cities of China have continued to decline. So far housing sales in Beijing have dropped ten percent, and Shanghai has a twenty percent drop. Sales in Shenzhen have also decreased significantly.