China's much talked-about real estate bubble may already have burst, according to economists at Nomura Securities, a leading financial firm.
"Every property market leading indicator at the national level turned down. The question is no longer 'if' or 'when' but rather 'how much' China's property market will correct," Zhang Zhiwei, economist at Nomura wrote in a note.
Highlighting the decelerating pace of sales and decreasing developer financing nationwide, experts say that the trend could drive down China's Gross Domestic Product (GDP) by about 6 percent. The slowdown in the real estate market could result in adverse economic consequences, especially because the property market accounts for about 16 to 25 percent of China's total economic output.
Indeed, investment in real estate has declined in four major provinces of the world's largest economy with two of them seeing about 25 percent slumps (Heilongjiang and Jilin), reports The Wall Street Journal. There is an oversupply of property but hardly any sales because of the tight purchase regulations.
In a separate report, Bloomberg's China Real Estate Information Corp. data compilation revealed that land sales in 20 of the major cities fell by 5 percent in March. The value of land also decreased 27 percent in April.
But have the conditions become irreversible now? Maybe, the analysts at Nomura say.
The economists assert that the government needs to loosen property regulations and boost borrowing in order to fix the problem right now. But the existing policies and demographic factors might make it hard for the market to have a soft landing.
"More policy easing in the next few months will be critical, as the property correction could snowball. Local governments are likely to be under even more pressure to help the property sector as their fiscal revenue generation is so highly dependent on land sales," analysts at Nomura added in the report.
While Nomura analysts are skeptical about the property market revival, UBS analysts say it isn't too late yet and prompt government intervention could ward off a hard crash, reports CNN Money.
In the wake of the asset bubble burst, more Chinese investors continue to pour their cash into properties abroad. Overseas spending on real estate projects soared to $1.1 billion in the first quarter of 2014. That's an 80 percent year over year increase!
"We expect interest and activity from equity-rich Chinese investors in overseas real estate markets to continue to grow throughout the remainder of 2014 and, as a result, it is possible that the total volume of spend by Chinese investors on commercial real estate outside of China could pass the $10 billion mark in 2014," Darren Xia, director of international capital group (ICG) at JLL China told CNBC.
