Chinese property prices dropping faster than Dubai two years ago

Posted on 20 April 2011 with 7 comments from readers

House sales in major Chinese cities plummeted 40 per cent year-on-year in March, according to the China Index Research Institute. And the price of new homes in Beijing slumped by 27 per cent from February.

The speed and scale of this housing slump is way ahead of Dubai two years ago, where prices fell by around 50 per cent in six months.

Although this may be considered as a good time to invest in Chinese real estate presently, the continuous fall in prices also creates a doubt in the minds of real estate investors. Look at this website and continue reading to find out to what extent the property prices in China are crashing and to understand how this will affect the general economy.

Sales slump

Chinese land sales fell 21 per cent quarter-on-quarter to 4,372 plots in 120 cities in the first quarter of 2011; 1,473 plots were for residential projects. The average price of floor area per square metre in the 120 cities dropped 15 per cent month-on-month.

This is the initial phase of a typical property slump: sales dry up and prices fall, albeit not normally this fast. The next phase is mortgage defaults and banking losses. This compounds the misery by restricting new loans and forcing further price falls.

Given that real estate and construction comprises more than 50 per cent of GDP in China – compared with around 30 per cent in Dubai at the peak of the boom – then a housing crash will surely mean a collapse in GDP.

All the commodities that China has been  importing by the ship-load must slump as a consequence, and such is the importance of this demand to the price of these commodities that their price will also fall sharply.

But housing in China is overpriced by 60-80 per cent on normal income ratios which leaves the whole banking sector exposed. Dubai banks are only just emerging from a two-year recession. Is this what we should now expect in China?

Dubai x1000

This is the long-awaited Chinese economic correction. Not surprisingly it is not being widely discussed in the Chinese media and it is a story that the Western press seems to have missed though all the statistics are published on the Internet.

But this just has to join the euro-zone debt crisis, the US budget and debt crises, and Japanese earthquake and nuclear disaster as one of the biggest threats to economic recovery. Indeed this just has to be the start of the double-dip recession.

Is it any wonder that gold and silver are gaining as safe havens?