China has been struggling to rein in property prices for many quarters but has not had much success. Last month, however, property sales by floor area finally fell 1.5% from last September. This is the first time property prices decreased in the last 2 and a half years. August saw a 4.3% increase in property sales and a 34% leap last September.
Real estate sector affects overall economic growth
The real estate sector in China has a direct effect on the country’s economic growth. It is the economy’s major driving force and affects up to as many as 40 other business sectors.
One of the major businesses whose viability is closely linked to the success of the real estate market is construction. While the property market has bounced back after slightly falls in the last 2 quarters, property analysts are less optimistic this time around.
Home prices easing in major Chinese cities
China’s economic growth fell slightly from 6.9% in the second quarter to 6.8% in the third quarter. Though home prices have eased in major Chinese cities, the threat of property bubbles forming in some parts of the country remain.
Attention have tuned from saturated markets to cities with less restrictions and more unsold inventory. That has however resulted in an increase in home buyers incurring debt from financing property purchases. That also means banks are at risk from a rising number of borrowers who are unable to honour their loans. They, in turn, are exposed to a higher risk of a property downturn. Household loans have risen to 734.9 billion yuan ($150.6 billion) in September. To get around loan restrictions, some buyers have also turned to taking short-term loans instead.