JAPAN’S FOOTSTEPS
Property investment is expected to gravitate more towards wealthy coastal areas. Shanghai and four of China’s richest provinces – Zhejiang, Jiangsu, Guangdong and Shandong – accounted for 49 per cent of January-April investment, up from 39 per cent five years ago.
But that is where the cyclical silver lining ends and less favourable comparisons with 1990s Japan start.
Wright estimates the industry as a whole, which used to represent about a quarter of China’s economic activity, will stabilise at 40-50 per cent of its peak levels and never return as a driver of growth.
Prices have yet to fully adjust and the negative financial spillovers will continue, he said.
New home prices in China have fallen 11 per cent, according to official data. JPMorgan estimates prices for older apartments dropped by a similar amount.
The 30-40 per cent peak-to-trough plunge in the US and Spanish downturns started in 2006-07 and lasted more than five years. In Japan, the correction took more than 18 years, pushing prices down by 47 per cent in the end.
So far, China’s pace has matched Japan’s. Odds are that it will continue to do so, analysts say.
What’s missing from both the Chinese and Japanese responses to the crisis is an early recognition of losses.
Japan asked banks to purchase land to slow down the fall in prices. China achieves something similar by placing limits on how much developers can lower new home prices and through a drip-feed of other support measures.
JPMorgan analysts say this is “perhaps an intentionally chosen strategy to mitigate financial spillover risks.”
A stock of unsold homes estimated at almost twice the size of London still exists on the balance sheets of cash-strapped Chinese developers, whose debts sit on the books of banks and other institutions.
By contrast, the United States spent an initial 5 per cent of gross domestic product to absorb toxic assets from financial institutions through its Toxic Asset Relief Program. Spain created a bad bank.
From: channelnewsasia
Business News
