The Chinese government, says Shuang Ding and Minggao Shen of Citigroup, will sacrifice gross domestic product to curb the property market. “China’s quest to curb property prices is one of the important parts to its fight against inflation. If home transactions slow, property related consumption and investment might also slow, and take the overall economy with it,” the economists said.
While sales in big cities like Beijing and Shanghai are grinding to a halt, the Chinese government has inadvertently opened up brand new markets. Real estate speculators now target second and third tier cities, Liu Li-Gang said, and recent statistics back up that claim. Prices rose 5.1 percent year on year in Guangzhou, the capital of Guangdong providence in the south. In Dandong in the northeast, prices rose 9.7 percent and 7.7 percent in Lanzhou.
Growth at Vanke, China’s largest developer by sales, slowed to a mere 1.3 percent in April, down from 47.8 percent in March. However, it’s May sales skyrocketed to 76.4 percent, rebounding beating not only the April’s paltry numbers but the sales from the previous May. China’s National Bureau of Statistics shows that new property prices increased in 67 of 70 cities, most of them in the second and third tiers.
Despite volatile prices, the Chinese property market is not considered in jeopardy. Economist Stephen Roach said, “The important signal Chinese authorities have sent is that unlike their counterparts in the West, they are focused on relieving or deflating bubbles before they become a major problem.”
Government officials and real estate investors will have to be careful not to deflate too many bubbles. “China’s quest to curb property prices is one of the important parts to its fight against inflation. If home transactions slow, property related consumption and investment might also slow, and take the overall economy with it,” Shuang Ding and Minggao Shen said.