China seeks ‘soft landing’ for house prices

China housing Feb11.jpgHousing’s share of China’s GDP has tripled over the past decade to 6%. This, of course, has stimulated demand for chemical and polymers. But as the Bloomberg chart shows, it is also worryingly close (blue line) to the peaks seen in the USA (black line) and, before then, Japan (dotted line).
The rise has been most dramatic over the past 2 years. The National Bureau of Statistics (NBS) reports property investment jumped 33% in 2010 to 4.8trn yuan ($725bn). In December alone, it says 557bn ($85bn) was invested, whilst the value of sales was 5.25trn yuan ($800bn), up 18% from 2009.
Nationally, house price growth is clearly starting to slow as the government raises interest rates and bank reserve requirements. Average prices in December rose only 6% versus 15% in April. And the State Information Center has warned they may fall in 2011.
Yet in Shanghai, for example, NBS data also shows that average urban household income is just 36000 yuan ($5450), whilst the average 1100 square foot apartment reportedly sells for $200k. So it seems likely that we are now entering a dangerous phase, when the government will hope to stabilise prices, rather than allow them to crash.
The experience of Japan, and more recently the USA, does not suggest this will be an easy task. Thus although chemical companies will naturally continue to hope the government will be successful, some time spent on scenario planning might well prove most valuable in the future.

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