HONG KONG: China's property chickens are coming home to roost. Last week's economic data show that a year of falling prices is finally changing developers' speculative behaviour.
After years of boom, most developers, like many investors, have acted as if the downward move were no more than a blip. When barred from getting bank credit, many property companies found funds elsewhere, notably through so-called trust companies, which make loans funded by short-term retail funding.
Throughout 2011, developers merrily continued to add new floor space at the same rate as they had a year earlier.
April's data show there has been a rude awakening. The amount of housing floor space completed dropped 56% from the total figure for January and February, months usually lumped together to account for the New Year's holiday. The shift is more than seasonal the drop off was a milder 35% in the previous two years.
Space under construction also failed to show its usual post-New Year spike. Overall, residential real estate investment grew 4% year-on-year in April a tenth of the rate of a year before. Adjust for inflation, and that's equivalent to no growth at all.
Since new property development accounts for about a tenth of China's gross domestic product building, a modest slowdown will be enough to cause overall economic activity to sputter.
By Reuters
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