With the falling prices of new homes across half of 70 cities in May, it is possible that China may expect a property crash soon. This is followed from exponential growth in the GDP, which gave economists a big alert on the presence of a disaster to come.
This is especially worrying as real estate developers are going to extreme measures to secure housing purchases. There is even a precedence of developers offering buybacks of houses up to 140% of the original purchase price after 5 years.
This is not withholding the fact that even places with heavy restrictions like Hohhot in Inner Mongolia are relaxing their regulations to allow non-residential buyers to purchase housing there, as well as removing the control of multiple apartment purchase.
Moreover, millennials in China can barely afford their expenses and would require their parents help should they want to have a house to call their own – this is a clear indicator that the general living costs are reaching to an unaffordable tipping point.
In China’s case, the challenge now is to ensure that the bubble doesn’t effectively burst, which would be a nightmare to the people and the government.
The construction and steel production industries will also be affected as low city growth will cause the local government to hold back development of the town infrastructure as well. This is because the local government depend on the land sales in order to finance the development of the town infrastructure.
With this issue at hand, there is a clear message that is brought out to the policy makers – it’s unavoidable for people to look at the policy with the current scenario. If they don’t do something about it, they will see a unprecedented performance drop in GDP growth in 24 years.
Unfortunately, the catastrophic consequences would not be just something that they can handle within the country – overseas investors will also be affected.
Afterall, we do not want the Lehman brothers incident at Wall Street to happen in China.