cooling chinese property market could impact economic growth
News Posted On: 27 January 2012
In the past few years China has enjoyed incredible growth, but it is thought the property market cooling could reduce growth levels by more than 2% this year. House prices in China have now dropped for three consecutive months and property developers are facing a tough year. A recent poll of economists found most are forecasting price falls of anything between 10% and 20% during 2012.
The past year and a half has seen a number of new measures introduced by the Chinese government in order to reduce property speculation and prevent the market from overheating. The measures started off gradual but eventually choked off the market from all sides, with the communist Chinese government taking full advantage of its influence in the banking sector.
Since the final measure added more tax on property sales in major cities including Beijing, there have been calls for the government to scale back its restrictions. However, the government has stated that it has no intention of doing so, saying that it will keep a tight grip on the market until prices fall to “reasonable levels”. The government knows that a property bubble can do far more damage to the economy than the little slowdown it faces for stopping it.
However developers in Beijing are still hoping policymakers may loosen their grip on the property market, even though the city saw some of the largest price gains in 2010.
Last year property investment accounted for 13% of China's GDP, which is significantly more than the 10% forecast. Property investment also increased by 28% during 2011, reaching £635 billion which is an incredible £130 billion more than was invested in US property at the height of the boom in 2005.
One major difference between the US and China is that China doesn't have the oversupply of housing which is currently holding the US market back from recovery. In fact the Chinese government is due to build 7 million units of public housing this year after building around 10 million units last year. Even if they achieve this figure GDP growth is still estimated to fall to around 6.6%, down from last year's 9.2% growth.
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Article written by Liam Bailey and Les Calvert
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