Tags: china | property | collapse | real estate | kenneth rogoff

Rogoff: China's Property Market Collapse Will Hit Banks

Tuesday, 06 Jul 2010 07:11 AM

China's property market is beginning a collapse that will hit the banking system, Kenneth Rogoff of Harvard University told Bloomberg Television.

Property transactions have dropped and prices are stagnating in the wake of steps in recent months by the central government to cool the market.

"You're starting to see that collapse in property and it's going to hit the banking system," Rogoff, a former chief economist at the International Monetary Fund, told the agency.

As China's economy develops, “especially at the speed it's growing, it's going to have bumps,” said Rogoff, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker.

He also said that while recoveries across the global economy are “very slow,” the danger of a return to recession isn't “elevated.”

Rogoff's concern echoes that of investors, who sent China's benchmark stock index to its worst loss in more than a year last week. China's data have been a focus because the nation has led the global recovery from the worst postwar recession.

Xu Shaoshi, minister of land and resources, had said during the weekend that he expected prices to start falling within a few months.

Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.

The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 percent in May from the previous month, Bloomberg reported. The increase in prices, at an annual 12.4 percent in May according to a government survey of 70 cities, was down from a 12.8 percent advance in April.

Not everyone agrees with Rogoff. Because home owners must make a downpayment of at least 20 percent and many pay entirely in cash, there is relatively little leverage in the Chinese property market.

"Despite the importance of the property sector in the economy, we believe that the deflating of this bubble should have only a limited impact on the real economy and the banking system," Nomura's chief China economist, Sun Mingchun, said in a report.

The Chinese-language 21st Century Business Herald newspaper on Tuesday quoted a real estate association official as saying government tightening measures were yielding initial results.

But prices in Tier-1 cities such as Beijing and Shanghai had not yet declined, he said, so officials needed to step up implementation of the measures, which include higher down payments, the end of mortgage rate discounts, curbs on purchases of multiple homes and restrictions on lending to developers.

© 2017 Thomson/Reuters. All rights reserved.

 
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China's property market is beginning a collapse that will hit the banking system, Kenneth Rogoff of Harvard University told Bloomberg Television. Property transactions have dropped and prices are stagnating in the wake of steps in recent months by the central government to...
china,property,collapse,real estate,kenneth rogoff
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2010-11-06
Tuesday, 06 Jul 2010 07:11 AM
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