Independent Economist Andy Xie has been a China bear for some years now, so long that as if there is no one who wants to listen to him again. Well, at least I will still first read about what he said before dismissing him.
In the Lujiazui forum, he told Sina finance that real estate prices will drop by 25% by the end of this year, and 40-50% in three years. Yet he thinks the banking sector will not be hurt much even with 50% of drop. This now echoes the view by Guo Shiping, a professor in Shenzhen University, that real estate prices will drop by 50% for 5 years.
The curious thing, however, is that he doesn’t think that the Chinese economy is overly relying on the real estate market, so he actually thinks that real estate prices dropping 50% will not fatally hurt the Chinese economy, and the banking sector can survive the crash.
This is because, he thinks, industrial productions, consumption and infrastructure construction are still showing growth in real term. That is a rather strange position. We are seeing signs of slowdown in the Chinese economy, including the slower growth in manufacturing, and retail sales which is still not growing fast enough to rebalance the economy. Financial difficulties in various businesses are now surging, highlighting the impact of the series of monetary tightening. Now the real estate market starts to show signs of weakness in terms of transaction volume, and weakness in terms of prices may soon be seen as well.
Thus that is, at least to me, hard to believe that the real estate market will crash while other parts of the economy will be doing just fine.Andy Xie might be right on his real estate market call this time (finally), but I find it hard to believe that other parts of his prediction if his forecast for the real estate market is right.
This article originally appeared here: Andy Xie: Real Estate Prices Will Drop By 50% In 3 Years
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