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CLSA sees no housing bubble
By Joy Wang |
May 18, 2010, Tuesday
|
Print Edition
Print Edition
CHINA'S housing market is fundamentally healthy, with strong demand led by owner-occupier purchases and therefore there is no risk of a housing finance bubble like what occurred in the United States, a senior analyst at CLSA said yesterday.
"We challenge today's conventional wisdom which says that China is on the precipice of a housing market collapse, which will crash China's banking system and then bring the economy to its knees," Andy Rothman, a macro strategist with CLSA China, said at the annual CLSA China Forum. "It is a mistake to look for the old US property problems to reappear in China."
China's story will be different from that of the US because China demands a down payment and has a low loan-to-value ratio - the amount of mortgage as a percentage of the total value of the property, he said.
Also, Chinese banks follow the traditional model of holding loans until they are repaid, and they don't have subprime mortgages. A CLSA survey showed that 78 percent of middle-class buyers are owner-occupiers who live in the property they purchase, Rothman said.
"Owner-occupiers, not investors, drive China's housing market," Rothman said. "The market is not primarily high-end, and housing is affordable for many middle-class Chinese, albeit not in big cities like Beijing and Shanghai."
But Rothman cautioned that a real risk may be government policies which should act as "rational" intervention and necessary to curb speculation.
"We expect the government to be rational and prices to rise mildly. There is no political or economic upside for China to crash the market," he said.
Despite the government's aversion toward speculation, China's urban property prices jumped 12.8 percent year on year in April, the biggest gain since July 2005.
On April 15, the central government raised the down payment on second-home loans to at least 50 percent from 40 percent. Two days later, the State Council issued a notice that banks should halt loans to buyers of third or more homes.
"We challenge today's conventional wisdom which says that China is on the precipice of a housing market collapse, which will crash China's banking system and then bring the economy to its knees," Andy Rothman, a macro strategist with CLSA China, said at the annual CLSA China Forum. "It is a mistake to look for the old US property problems to reappear in China."
China's story will be different from that of the US because China demands a down payment and has a low loan-to-value ratio - the amount of mortgage as a percentage of the total value of the property, he said.
Also, Chinese banks follow the traditional model of holding loans until they are repaid, and they don't have subprime mortgages. A CLSA survey showed that 78 percent of middle-class buyers are owner-occupiers who live in the property they purchase, Rothman said.
"Owner-occupiers, not investors, drive China's housing market," Rothman said. "The market is not primarily high-end, and housing is affordable for many middle-class Chinese, albeit not in big cities like Beijing and Shanghai."
But Rothman cautioned that a real risk may be government policies which should act as "rational" intervention and necessary to curb speculation.
"We expect the government to be rational and prices to rise mildly. There is no political or economic upside for China to crash the market," he said.
Despite the government's aversion toward speculation, China's urban property prices jumped 12.8 percent year on year in April, the biggest gain since July 2005.
On April 15, the central government raised the down payment on second-home loans to at least 50 percent from 40 percent. Two days later, the State Council issued a notice that banks should halt loans to buyers of third or more homes.
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