China Economist Warns of Falling Property Prices, Debt Pressure
China should guard against the risk of falling property prices and a potential crisis if home values start dropping below mortgages, a prominent state-linked economist warned.
Some Chinese cities have already set a floor for property prices in addition to price caps, and the vacancy rate in some regions have topped 10%, Li Yang, chairman of the National Institution for Finance & Development, was cited as saying by the official Economic Daily in a Wednesday report. The institution is a think tank that advises the government under the state-run Chinese Academy of Social Sciences.
“If one day the value of houses plunged below the mortgage value, people won’t even be able to repay their debt by selling the houses, and that would be a real crisis for the property market,” Li was cited as saying at a forum on Aug. 29.
China’s home ownership rate was 90% in 2020, far higher than the global average of 69%, which makes it difficult for cities to contain price increases and speculation in the market, according to Li. In Germany, the rate was only 43%, while 57% of households lived in rented houses, he said. China needs to create an effective rental market, he added.
Volatility in the property market and mortgage financing have had major effects on economies, and the distortion in markets like the U.S. and Japan even became the main triggers for long recessions, Li said.
China has widened curbs on property over the past year with a slew of new policies and regulations, signaling greater determination to curb the market even as the economy starts to slow.
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