China 'bubble' will burst soon: Nomura

Business Times - 17 Jun 2010

VIEWS ON CHINA PROPERTY
China 'bubble' will burst soon: Nomura

(SINGAPORE) The 'bubble' in China's property market is going to burst very quickly, with prices set to fall as much as 20 per cent in the next 12-18 months, according to Nomura Holdings Inc.

National real estate prices may drop 10-20 per cent on average, compared with an increase of about 22 per cent last year, Sun Mingchun, a Hong Kong-based economist at Nomura, said in a Bloomberg Television interview.

'If you look at (the ratio of) housing prices to disposable income in Beijing and Shanghai, they are 13, 14 times,' said Mr Sun, whose team was ranked third in Institutional Investor's 2010 Asian poll for China research. 'There's no way you can say there's no bubble.'

Real estate prices jumped 12.4 per cent across 70 cities in May, adding to the 12.8 per cent surge in April that was the most since the data series began in 2005. The gains suggest that measures ranging from a ban on loans for third-home purchases to higher mortgage rates and downpayment requirements for second-home purchases have yet to cool the real estate market.

Stephen Roach, chairman of Morgan Stanley Asia Ltd, said the government's measures are working 'by all accounts'. China's property boom isn't a bubble because it's supported by 'solid' demand for residential housing, he said.

While portions of the real estate market such as high-end apartments are overheating, demand for homes will remain robust as rural Chinese migrate to bigger cities, he said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance.

'This is just a sliver of the property boom,' Mr Roach said, citing that each year since 2000, 15-20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. That's 2-1/2 New York Cities created annually, he said. 'This underpins a huge demand for residential property. This property has not overheated and the demand for this property is very, very solid.'

The China Banking Regulatory Commission warned of growing credit risks in the nation's real estate industry and increasing pressures of non-performing loans. Risks associated with home mortgages are growing and a 'chain effect' may reappear in real estate development loans, according to its annual report published on its website on Tuesday. -- Bloomberg

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