China : 42 percent of buyers have suspended plans to buy apartments

Last week, the China Daily reported that predictions of China’s housing bubble crashing in 2011 had flooded the Internet after a comparison was made between China’s runaway property market as that of Japan in 1991. The correction in Japan’s market caused a depression and 20 years of pain.

According to a survey released on the weekend from China’s central bank – The People’s Bank of China, approximately 42 per cent of buyers have suspended plans to purchase an apartment this year. Most have done so on the expectation prices will drop.

The survey shows over 14 percent expected house prices in Beijing to drop in the next three months with another 13 percent expecting drops within the year.

According to China Reality Research, property sales have already started to take a turn. In survey results published in Property Monthly, China Reality Research, February 10, 2010 nearly a fifth of all recently sold properties were kept vacant. In China, like has been the case recently in Australia, property speculators buy with a view of capital gains rather than rental yield. Apartments in China generally loose value if rented out.

In a GMO white paper, titled “China’s Red Flags”, author Edward Chancellor writes Beijing now has a house price to income ratio above 15 times. In contrast, prices of Tokyo condos peaked at 9 times in 1990 prior to Japan’s property correction.

A correction in China’s property market may dent the enthusiasm of Chinese buyers to purchase property in Australia, but the impact is likely to be felt more heavily through less demand for the resources required to build China’s increasingly empty apartments, office towers and shopping centers.

» More buyers delay home purchases: Poll – The China Daily, 6th April 2010.

» Collapse predicted as housing prices continue to soar – The China Daily, 3rd April 2010.