Thursday, January 29, 2015

Despite Higher Property Sales Volume, China's Number One Problem Isn't Going Anywhere

This article was first published by Seeking Alpha on January 14, 2015

By Sarfaraz A. Khan. Research Asst. Iffat Zehra

China has been struggling to fix its sluggish economic growth rate. As per PwC's estimates, last year, the country's economy grew by 7.2% -- which looks great when compared against the U.S. as well as some of the developed European countries - for China, this growth rate is, in fact, the slowest since 1990. The sluggish growth is due, in part, to the soft demand from the property sector which has been dealing with excess supply.

Some of China's major cities, however, have been resilient in the face of the property market slowdown. Last week, a plot of more than 155,000 square meters of land in Beijing was sold at 22% premium to its opening price at record level of around $1.4 billion, as per the Beijing Land and Resources Bureau. Moreover, 60% of other major cities reported higher sales volume in December. The biggest increase occurred in the first-tier cities - such as Beijing, Shanghai and Guangzhou -- where volumes increased by 15% from the prior month and 45% from December-2013.

The improvement can be mainly attributed to an ease in the monetary and housing policy, such as the cut in interest rates that can improve liquidity and spur purchase activity in the property market. In addition, the relaxation in the mortgage lending rules and an end to house purchase restrictions has also helped. However, the strength of the property market does not mean a complete rebound in this sector. On the contrary, analysts expect continued weakness … read full article at Seeking Alpha