The great China debates (III):Property boom,blip,or bubble?

China property: From crash to bubble.

    18 months ago, investors were concerned about a‘hard landing’ in the property market. But therecent price surge in tier-1 cities has sparkeddebates about the ‘frothiness’ of the housingmarket, and worries about a boom/bust scenario.

    In this report, we analyze three broad relatedtopics: 1) physical market dynamics; 2) macroimplications; and 3) impact on asset markets.

    Supply-demand mismatches drive pricedivergence; destocking to extend.

    Nationwide housing prices have been flat for fiveyears but top cities’ prices have doubled, and ouranalysis implies speculation picked up in 2015, to~30% of sales. Supply-demand imbalances are thekey driver: close to 50% of the completed GFA(8.2bn sqm) and potential supply (7.4bn sqm) is inlow-tier resi. markets, where future demand couldbe suppressed by overbuilding, high vacancyrates, and population outflows. We may be a thirdof the way into a nationwide housing destockingcycle, which could last for 2 to 3 more years(longer for commercial/office) even if new startsfurther moderate and sales growth stays robust.