6 May 2014
China's housing market at risk of major correction - Nomura
FXStreet (Bali) - Nomura Economists see a rising risk of a major correction in China's housing market, which poses a serious threat to growth this year, they say.
Key Quotes
"Property investment growth turned negative in four of China’s 26 provinces1 in Q1 2014. In two provinces it fell by 25% y-o-y. Every property market leading indicator at the national level turned down in Q1, and for most monthly indicators the rate of decline accelerated through the quarter."
"The question is no longer “if” or “when”, but rather “how much” China’s structurally oversupplied property market will correct."
"We argue the correction has been triggered by monetary policy tightening since mid-2013 and that the downtrend will continue unless policy tightening reverses into loosening."
We see a rising risk of a major correction which poses a serious threat to growth this year.
"We consider two scenarios for the outlook for property investment: 1) investment growth slows by 6.0 percentage points (pp) from its 2013 level; and 2) investment growth slows by 12.0pp. Without policy stimulus, we estimate that scenarios one and two could drag GDP growth down to 6.7% and 5.8%, respectively."
"Our baseline remains that the government will have to loosen fiscal, monetary and property-sector policies significantly to achieve our forecast 7.4% GDP growth in 2014."
"We expect growth to slow to 6.8% in 2015 as policy easing will likely exacerbate the oversupply problem in the long run."
Key Quotes
"Property investment growth turned negative in four of China’s 26 provinces1 in Q1 2014. In two provinces it fell by 25% y-o-y. Every property market leading indicator at the national level turned down in Q1, and for most monthly indicators the rate of decline accelerated through the quarter."
"The question is no longer “if” or “when”, but rather “how much” China’s structurally oversupplied property market will correct."
"We argue the correction has been triggered by monetary policy tightening since mid-2013 and that the downtrend will continue unless policy tightening reverses into loosening."
We see a rising risk of a major correction which poses a serious threat to growth this year.
"We consider two scenarios for the outlook for property investment: 1) investment growth slows by 6.0 percentage points (pp) from its 2013 level; and 2) investment growth slows by 12.0pp. Without policy stimulus, we estimate that scenarios one and two could drag GDP growth down to 6.7% and 5.8%, respectively."
"Our baseline remains that the government will have to loosen fiscal, monetary and property-sector policies significantly to achieve our forecast 7.4% GDP growth in 2014."
"We expect growth to slow to 6.8% in 2015 as policy easing will likely exacerbate the oversupply problem in the long run."