Even tighter controls on real estate are likely.
On one level that is welcome. A “one-way-bet”
mentality has clearly taken hold in parts of
Chinese real estate. For one thing, prices of
existing residential dwellings are up by half since
mid-2015. Market surveys suggest about one-fifth
of residential home sales in 2016 were related to
investment demand (buyers of second homes),
doubling the average level of six to ten per cent
between 2012 and 2015.
As a result, household debt has more than
doubled to 46 per cent since the financial crisis.
While this is still far below the average OECD
level of 102 per cent of output, it is already
higher than in some other large emerging
economies. Household mortgage leverage could
even be higher if down payment loans provided
by real estate developers or via shadow banking
loans are taken into account. There is anecdotal
evidence of excess exuberance, for instance the
divorce rate in Shanghai has increased to bypass
purchase restrictions.
On another level, however, tightening
controls on real estate could prove problematic
because the property sector is one important
factor driving Chinese consumption growth, and
if that slows, the world will feel the pinch. In fact,
from a trade perspective, the incremental
demand from China (excluding processing
imports) was more important than that from the
US in 2016 and the first half of 2017. As such,
2018 could see a change where slowing
real estate precipitates slower Chinese
consumption growth.
EU Forecast
euf:b18:84/nws-01