Is China's real-estate market headed for a collapse or will it be a managed slowdown?

In the middle of the previous decade, when large numbers of newly built properties remained vacant as housing prices tripled, predictions that the market was on the verge of collapse abounded. The bubble did not burst, however, as government policies aimed at stopping overseas speculators and limiting purchases of second homes seemed to control the threat.

But many observers now see new danger signs in the real-estate sector, making the possibility of a crash seem more certain to them.

"We are convinced that the property sector has passed a turning point and that there is a rising risk of a sharp correction," Nomura Securities analysts Zhang Zhiwei wrote investors this month. Behind the comment were Chinese government statistics showing that the amount of unsold commercial and residential property in the country hit an all-time record in March. China's national growth rate is now seen as possibly dropping below the 6 percent mark in 2014 amid a glut of housing supply and tight project-development funds.

Driving Nomura's prediction were negative first-quarter property investment figures in four of China's 26 provinces, including two - Heilongjiang and Jilin - where the investment dropped by more than one quarter in the period. When the property industry turns downward in China, national growth suffers because of the industry's major influence on economic performance.

Other analysts dismiss the idea of a short-term popping of China's property bubble and see a gradual deflating of the bubble.

One of them is Barclays PLC's Barclay Capital, who predicts that will occur in the next 18 months as government monetary policies and developers manage their activities more carefully.

"We believe the government will likely tolerate some further correction, although not too steep, and also allow local governments more discretion to use 'differentiated housing policies' that fit local situations," Barclays China economist Chang Jian said.

UBS AG said China's leaders will try to slow the downturn through policy moves. "The government still has the means and willingness to mitigate a property downturn, including by increasing infrastructure investment and relaxing property policies," UBS economist Wang Tao said.

"As such, our base case forecast is for the property downturn to remain manageable," Wang said.

Sophii Weng, an economist with Standard Chartered Bank in New York, told China Daily the bank expects China's government to step in to blunt the impact of a housing-market slowdown as property investment growth declines through this year.

"Given the importance of the property sector to China's economy, we think the government will introduce more loosening measures to mitigate the impact of a housing-market slowdown," Weng said in an interview.

Moves by China's central bank, the People's Bank of China, requesting that banks speed up mortgage lending, set mortgage rates at reasonable levels, and do more to meet first-home buyers' mortgage requirements "signal that the central government would like to stabilize the housing market", the economist said.

National growth is "clearly decelerating - and without more aggressive short-term stimulus measures, we think it is set to slow further," Weng said. To meet or come close to Chinese Premier Li Keqiang's 2014 goal of 7.5 percent GDP growth, Beijing will need to gradually loosen policy in the second and third quarters, Weng said.

"We expect this loosening to take the form of increased investment" as well as export-tax rebates, reserve requirement ratio cuts in the second and third quarters and a basically flat Chinese yuan against the US dollar.

Such moves would help "stabilize growth and confidence", the economist said.

Observers like Ma Guangyuan, a member of the 12th Beijing Municipal Committee of the Chinese People's Political Consultative Conference and director of the Private Economy Research Center under Renmin University of China, find it hard not to conclude that the decade-long Chinese real estate boom may be over.

Ma wrote in China Daily that the average price of newly built homes in China's 70 major cities rose 8.7 percent year-on-year in February, slightly lower than the 9 percent growth in January, according to data from the National Bureau of Statistics.

The number of cities that saw prices rise fell to 57 in February from 62 in January while prices rose just 0.7 percent on average in the latest month, compared with a modest 1.2 percent rise a month earlier, Ma pointed out. Moreover, in Beijing, Shanghai, Guangzhou and Shenzhen - major cities that saw huge increases just a year ago - the price increase fell below 20 percent, the research center director noted.

"Along with the slowing price increases is the drastic drop in home sales. In Beijing, only 2,221 new homes were sold in February, a record low since 2007," Ma wrote. "The February volume for sales of secondhand houses was 5,441, decreasing by 38 percent from January and 46.3 percent from a year earlier, a new low in 24 months."

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(China Daily USA?05/20/2014 page1)