Advertisement

Concrete Analysis | Potential home price correction would have broad impact on economy

Amid the collapse of Zhejiang Xingrun, risks are seen more related to the development side than the household side

Reading Time:3 minutes
Why you can trust SCMP
A weak residential property market could affect construction and demand for land. Photo: Reuters

Concerns about China's residential property market have existed for several years, with many observers describing it as a bubble.

Advertisement

Fears have increased recently with the high-profile collapse in March of Zhejiang Xingrun, an unlisted private developer.

There are varying views on the property sector, and we see risks being more related to the development side - which flows into concerns about local government debt and shadow banking - than the household side.

As a result, a correction in property prices could have a significant impact on the broader economy.

The property sector is not a single entity. Official data shows there are 160 mainland cities with a population of more than one million, and conditions across the country are vastly different.

We believe that there is a potential for a correction in house prices this year

The biggest concerns appear to be in tier-3 and tier-4 cities - which are smaller and often lack detailed data on prices and sales. These cities also had two-thirds of construction activity last year, according to Nomura.

Advertisement