China's property market is starting cool and the bubble could pop next year, according to a report. Photo: iStock
Leading developers like Country Garden said its total contract sales attributable to shareholders in January was approximately 33.07 billion, which fell by 52.2% when compared with the 69.19-billion-yuan in the same period last year. Photo: iStock

China is facing property bubble trouble just at a time when the economy is starting to cool and the trade war with the United States enters a crucial phase.

A research report from one of the country’s largest state-backed investment banks has warned that 2019 could be a “year of recession” for the real estate sector.

The China International Capital Corporation, or CICC, pointed out in the study that sales, investment and new construction starts would decline significantly.

“In response, the government should alter policies that were put in place to cool the market,” CICC researchers stressed.

Indeed, years of booming growth appear to be over with property investment slowing to 8.9% in September from 9.2% in August while home sales fell 3.6% from a year earlier.

To put that into perspective, one the country’s biggest developers China Vanke confirmed that “survival” was the ultimate goal for the next three years as a “turning point” had arrived for the industry, Chinese media website Caixin reported.

Concerns are also growing about the number of empty apartments and houses across the world’s second-largest economy.

Data from a nationwide survey, which has yet to be released by the Chengdu’s Southwestern University of Finance and Economics, showed that about 50 million homes were unoccupied, which was about 22% of retail properties.

Nightmare scenario

Many were bought as investments and the nightmare scenario for Beijing is that if the housing bubble pops, the market could be flooded, sending prices spiraling down.

“There is no other single country with such a high vacancy rate,” Professor Gan Li, who is in charge of the study at Chengdu’s Southwestern University, told Bloomberg News. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

Yet again, this is just another statistical snapshot illustrating a broader malaise in the economy, which is showing distinct signs of slowing.

In the third quarter, GDP growth came in at a respectable 6.5% but still fell to levels not seen since the 2009 Great Recession.

Moreover, the pace of expansion in the service sector is decelerating while factory activity has dropped.

Latest data on consumer confidence has also dipped, CEIC, a global market intelligence firm, revealed, with pressure from the trade dispute fueling anxieties in China’s stock markets.

Ending this economic Cold War has now become a priority for Beijing when you factor in punitive tit-for-tat tariffs, including US President Donald Trump’s decision to slap import duties on Chinese goods and products worth nearly US$250 billion.

In a move to draw a line under this bruising brawl, President Xi Jinping’s top trade negotiator Liu He, a vice-premier, is poised to visit Washington in the next week to try to ease tensions between the two countries.

The planned trip followed a reported telephone conversation on Friday between Liu and US Treasury Secretary Steven Mnuchin, according to The Wall Street Journal.

Further discussions

While that failed to produce a breakthrough, sources told the Chinese media that they agreed to hold further discussions.

“Diplomatic observers said Liu may be visiting Washington as part of the preparations for the meeting between the two leaders,” the South China Morning Post stated.

Significantly, this was a reference to the planned mini-summit between Xi and Trump on the sidelines of the G20 gathering in Buenos Aires later this month.

Naturally, the trade war will be top of the agenda. Still, it is open to debate whether a compromise can be found.

“We’re going to see these two sides continue to dig in their heels – both sides still think they have the upper hand,” Scott Kennedy, the deputy director of China studies at the Center for Strategic and International Studies, a Washington think tank, said.

“For President Trump, even though he’s signaling that it’s possible they want a deal, there’s actually no monster benefit to him economically or politically. So, I think they’ll continue to do this dance and all of us will continue to watch,” he added.

For China’s strapped, middle-class homeowners that could end up being a terrifying thought.

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