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The risks of a blow up in China’s property market are rising, threatening a slowdown that could hurt global growth.
The sector is second only to the related problem of credit growth on a list of threats to China’s economy — according to economists surveyed by CNNMoney.
Talk of a property bubble in China is nothing new — economists have long fretted over the meteoric rise of home prices, and the runaway pace of new construction.
Media reports on “ghost cities” — newly constructed Chinese municipalities that were never occupied — led to frequent warnings of a crisis, which has not yet materialized.
The sector’s continued strength results in a kind of Rorschach test, where the same image is perceived very differently: Pessimists say real estate is emblematic of problems such as rapid credit growth and backward economic incentives. Bulls counter that the boom is sustainable, especially as hundreds of millions of Chinese migrate into urban areas.
The sheer size of the real estate sector — some 16% of GDP — underscores the importance of the debate for a world economy that is increasingly connected to China.
The fears of a slowdown have now returned, sparked by a flurry of reports from third and fourth-tier cities that suggest ailing developers are offering big discounts to unload property quickly. Even in some major cities, sales have slowed and homeowners are fretting over lower demand.
The far flung smaller cities account for almost 70% of all home sales, according to Japanese brokerage Nomura.
“In China, the true risks of a sharp correction in the property market fall in third- and fourth-tier cities, which are not on investors’ radar screens,” Nomura analysts wrote recently.