If property prices are anything to go by, China might have hit a bump in the road to becoming the world’s biggest economy
For the last few years, the Chinese economy has been booming, as corporate growth, rising property prices and an expanding middle class have fuelled an incessant upward trend in the country. some experts are concerned that this streak may be coming to an end as property values in high-profile cities like Shenzhen begin to sink. But does the abrupt change in values signal the start of an economic collapse?
China’s property values have been on a downward spiral since last autumn. The largest builders in China have been slashing new home prices in the city, causing residential property values to drop significantly. According to analysts, the downturn may continue for some time; in fact an economist with the Chinese Academy of Social Sciences predicted that home prices could fall by as much as 50 percent if the government does not take measures to boost the market.
Falling property values have a particular impact on Special Economic Zones like Shenzhen. The city was created in the late 1970s with the specific goal of increasing China’s economic influence. As the domestic economy began to heat up in the 2000s, Shenzhen became one of the fastest-growing cities on the planet, thanks to its ties to financial markets, shipping and the technology sector. Unfortunately, this rapid rise has not given the city enough time to consolidate its industries in the event of a sudden turnaround. In January the price of property in Shenzhen fell another 0.2 percent. Construction agencies that are based in the city, such as Vanke, have been reporting falls in sales of up to 30 percent on the heels of the slowing housing market.
Causes for the instability
Shenzhen’s property value fluctuations have been caused by several factors, the largest being persistent inflation and the slowdown in China’s housing market as a whole. According to estimates, there are tens of millions of empty apartments in the country, a large number of them in Shenzhen and other high-profile cities. This glut of supply has been a major contributor in the decline of current values.
Artificially high property prices, which led to the housing bubble, have also played a role. Since so many homes were valued far above their real worth, the sudden decline has been larger than it ordinarily would have been in the past. However, the biggest single reason behind the instability has probably been the Chinese government’s decision to continue the measures it enacted to slow down the housing market. Rather than lifting cooling initiatives, such as high mortgage rates and restrictions against purchasing second homes, the Chinese premier has carried on with these policies, even though the market has been deteriorating for over eight months. Commenting on the government’s determination, one property analyst said, “Home prices will continue to fall in the coming months because it’s pretty clear that the central government won’t ease the tightening soon.”