Will housing prices see a continuous "downturn", will the drop be short-term or will there be sharp fluctuations? Two experts express different views on the topic.

Market may follow Japan's trajectory

by Gao Shanwen

A series of new policies issued by the State Council, the country's Cabinet, to cool down soaring property prices have again made people wonder about the housing market's future trend. What other tightening measures are likely to follow? Will housing prices see a continuous "downturn", will the drop be short-term or will there be sharp fluctuations?

What can be predicted, though, is that China's existing economic structure cannot sustain fast GDP growth in the long run, and a series of accumulated systemic problems, including the real estate price "bubble", will finally overwhelm the economy by, say, 2012. Albeit, during this time, the authorities will take more rigorous macro-control measures if the economy faces inflation.

From the second half of 2011, serious inflation will probably lead to stricter macroeconomic regulations, resulting in the slowing down of economic growth. China passed the "Lewis turning point" and shifted from being a labor-surplus economy to one with labor shortage some time between 2003 and 2006. The uneven economic growth pattern which relies on cheap labor forces will end with the cleaning-up of local financing platform and bursting of the property market "bubble".

Prices in the property market, especially the housing market in first-tier cities, have crossed all limits. In the next two or three years, the housing market will therefore experience moderate adjustments. Housing prices will fall slowly and trading volume will increase at a speed below the average.

The negative impact of the "bubble" burst on economic growth would be limited to within 2 percentage points, marked by falling investments in the real estate sector and overcapacity of upstream industries.

The real economy, compared with the property market, is becoming more attractive. Although because of short-term economic fluctuations the real economy is faced with overcapacity, China has been gradually consuming the accumulated excess capacity since 2008. The moderately easy monetary conditions are expected to end, with the scale of trade surplus declining systemically and the contribution of initiative credit creation reducing gradually.