China property bubble to burst 'very quickly'

Workers labor on a construction site for a residential development in Shanghai. Photographer: Qilai Shen/Bloomberg

SINGAPORE: The "bubble" in China's property market is going to burst very quickly, with prices set to fall as much as 20 per cent in the next 12 to 18 months, according to Nomura Holdings Inc.

National real-estate prices may drop between 10 per cent and 20 per cent on average, compared with an increase of about 22 percent last year, Sun Mingchun, a Hong Kong-based economist at Nomura, said in a Bloomberg Television interview.

"If you look at housing prices to disposable income in Beijing and Shanghai, they are 13, 14 times," said Sun. "There's no way you can say there's no bubble."

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Real-estate prices jumped 12.4 per cent across 70 cities in May, adding to the 12.8 per cent surge in April that was the most since the data series began in 2005. The gains suggest that measures ranging from a ban on loans for third-home purchases to higher mortgage rates and downpayment requirements for second- home purchases have yet to cool the real-estate market.
Stephen Roach, chairman of Morgan Stanley Asia Ltd, said the government's measures are working "by all accounts".

China's property boom isn't a bubble because it's supported by "solid" demand for residential housing, he said. While portions of the real-estate market such as high-end apartments are overheating, demand for homes will remain robust as rural Chinese migrate to bigger cities, he said in a radio interview.

"This is just a sliver of the property boom," Roach said, citing that each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in the mainland.

The China Banking Regulatory Commission warned of growing credit risks in the nation's real-estate industry and increasing pressures of non-performing loans. Risks associated with home mortgages are growing and a "chain effect" may reappear in real-estate development loans, according to its annual report published on its website on Monday.

By Bloomberg