Chinese Real Estate Developers Signal Drop in Construction

China’s efforts to cool its property sector look to have been more effective than intended, as a sharp drop in construction activity and falling prices threaten what had been one of few firing engines of the world’s second-largest economy.

Developers know the market is struggling — their inventory is rising and prices are falling — but expect that authorities will relax their tight grip on the sector in coming months.

The government has long made it clear that economic growth would moderate as it tries to reform the economy. But by keeping the pressure on property too long, analysts fear the fallout will be more severe than anyone had expected.

“To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” Nomura analysts said in a report.

New housing starts in the first quarter fell 25.2 percent compared to a year ago, Nomura calculated, as tighter credit conditions, oversupply and falling prices undermined the market.

They estimated the property slump could take a full percentage point off China’s economic growth this year, knocking it below 7 percent for the first time since 1990. The government is targeting growth of about 7.5 percent.

The downturn really gained traction in late 2013 after more than four years of government efforts to tame record home prices and avoid an asset price bubble. Authorities also wanted to channel money towards consumption and productive investments.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza