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CBRE: China housing bubble not ready to burst

The property consultancy has dismissed concerns about an immediate correction in China’s residential property markets and said that the risks are still manageable.

Fears of a market correction following surging residential property prices in some of the biggest cities in China are being overplayed, according to CBRE.

In a research note released earlier this week, the property consultancy, said that China’s housing market risks are manageable and a price correction is unlikely to occur before the second quarter of 2017.

Referring to the escalation in home prices, CBRE said this increase is confined only to the upper tier markets, and the situation in the tier III and tier IV cities, which are still struggling with excess inventory, remains stable for now.

Additionally there is still room to increase cooling measures to tame price increases in the tier II markets, including further administrative, tax and financial measures, the note said.

CBRE also said the property investment by developers has not increased significantly and continues to remain below the previous peaks.

“Investment in development, land sites and new construction starts recorded growth of 5.4 percent year on year, 7.9 percent year on year, and 12.2 percent year on year, respectively, in the first eight months of 2016, much more moderate growth rates than we spotted in previous cyclical peaks,” it said.

“With many homebuyers disqualified from making further purchases, investor sentiment in major cities has weakened. Residential sales are likely to decline in upper tier markets, which accounted for 22 percent of total nationwide transaction volume for the first eight months of this year. However, given the current low inventory level, a price correction is unlikely to occur before Q2 2017,” it went on to add.

The health of China’s residential market has triggered a wave of polarized responses. In an early October note by Goldman Sachs titled ‘China housing: when good news becomes bad news’, the firm reportedly warned about growing vulnerability in the Chinese property market and how a downturn could impact other sectors such as the metals sector. In a Bloomberg report Zhiwei Zhang, chief economist at Deutsche Bank AG said he sees a “clear sign of a bubble in the market – one that will end in a major correction in two years’ time.”