China’s property market looks to be on shaky ground with home sales flagging and prices declining, but Goldman Sachs isn’t fretting about a sharp downturn in the sector.
“Our bottom line is that the Chinese housing market has some clear signs of ‘froth’,” Andrew Tilton and Hui Shan, economists at the bank, wrote in note. “But with several sources of pent-up demand, policymakers have a broad array of tools to deploy (and have even started to deploy some) to help support the housing market,” they said.
The bubble in the housing market has been generated more from the supply side – overbuilding by developers— rather than the demand side whereby households leverage up to purchase beyond their means, Tilton and Shan said.
This means there is still scope to stimulate demand should policymakers desire to do so, they said, noting that rapidly-rising incomes and continued urbanization ensure a large pool of potential buyers in the country.
“Chinese policymakers are attentive to the risks and can avail themselves of a particularly broad array of tools to smooth the adjustment path and limit risks,” they said.
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