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China Home Prices Cooling Off: Is It a Blessing?
Tuesday, January 03 2012 | 10:30 AM
Ron D'Vari
Chief Executive Officer & Co-Founder,
NEWOAK CAPITAL LLC | The latest home prices data in China confirms the broad-based falling trend for home prices in China. New home prices dropped from the previous month in 49 of the cities monitored by the government, according to the Chinese national statistics bureau. The dampening of home sales and falling prices is a natural outcome of government real-estate industry curbs. Despite the European crisis and other easing measures, the government has reiterated its tightening property policy and intensified the restrictive measures this year by raising down payment and mortgage requirements, and have imposed further home purchase restrictions in key cities. Analysts expect the real-estate policies are targeting home prices to fall by as much as 20% from their peaks in 2011.
The government’s main goal is to reduce speculation in the sector and avoid a drastic credit bubble burst induced by real estate. The restrictive measures seems to be working gradually and are expected to further cool off Chinese property markets throughout 2012. The controlled and gradual falling of Chinese home prices may prove to be a blessing and not cause for concern. In retrospect, it would have been wise if the US government had followed a similar path and imposed more restrictive mortgage lending measures starting in 2004 to prevent the precipitous and uncontrolled home price fall in 2007.
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