An leading Asian bank warned it’s clients to prepare for a fall in property prices of up to 30pc in Beijing, Shanghai, Shenzen, and other large cities in China as the delayed effects of monetary tightening begin to bite.
Stephen Green, Standard’s bank China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation. “We believe developers will be forced to cut prices,” he said.
The government is trying to deflate the housing market gently, mostly using tools known as “financial repression” rather than Western style rate rises.
Xu Shaoshi, land minister, said sales are already dropping. “In another quarter’s time or so, the property market will probably come to a full correction and prices will fall. It’s hard to say to what extent they will fall,” he said.
At the same time, China is shifting its foreign reserve strategy, rotating out of Europe and into Japanese government bonds (JGBs). Japan’s finance ministry said China bought $6bn (£3.9bn) of bonds from January to April, a record pace of accumulation.
Analysts say Beijing is hunting for fresh places to park its reserves after losing confidence in eurozone debt.
It already holds around 70pc in dollars, a level deemed too high by many in Beijing. China’s move helps explain the fall in yields on 10-year JGBs to just 1.06 pc last week, and why the yen has appreciated to ¥87 to the dollar — nearing levels last seen in 1995.
China views soaring house prices as a threat to social stability, since workers are shut out of the market. The price-to-earnings ratio is 13 in Beijing and Shanghai, four times Western levels.
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