Risks of Decline in China Real Estate Investment Decrease in 2012, Says China's Economy & Policy17 May 2012 • by Natalie Aster
According to current observable and trackable evidence, indications are that the risks of a decline in real estate investment are decreasing. Considering the exogenous variables, such as those for indemnificatory housing (indemnificatory housing includes low-rent and affordable housing, public rental housing, and relocation projects for residents who have been moved to make way for commercial developments), special attention should be given to the real estate investment data in 2011 and 2012, and the differences between the data and the facts cannot be ignored. From this perspective, there may be less of a decline in real estate investment in China in 2012 than previously thought.
According to the article “A Soft Landing for Real Estate Investment in 2012” by China's Economy & Policy-Gateway International Group (China's Economy & Policy), the difference between the trend for the growth rate data of newly-started and under-construction real estate projects and the trend for the growth rate data of real estate sales has shown that the number of new starts may be overestimated.
A Soft Landing for Real Estate Investment in 2012
Published: April, 2012
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There has been a marked correlation between the data for the areas of newly started real estate projects and the sales data over time, however, the correlation has weakened since June 2010. The area of newly started houses has increased by 40% on average in the past 18 months (second half of 2010 and the entire year of 2011, 18 months in total); the area of under-construction housing has increased by 30% on average, presenting the highest level in the past 5 years. However, this is exactly the period when real estate sales continued to drop, with an average decrease of 9% in the past 18 months. Historical experience indicates that such a difference between these trends may mean that the increase in the area of newly started and under construction houses is not as high as was reported.
In December 2011, real estate investment increased by 27.9%, maintaining a high level. It has been widely accepted that real estate investment will tend to decline in 2012, but there is disagreement on the extent of the decline and the magnitude of the impact it will cause.
The key point is that the extent of the decline can be either a periodic adjustment resulting from regulation and controls, or an adjustment which will last for a long time. The extent of the real estate decline in 2012 will mainly depend on three factors: the first is the extent of the decline in real estate investment; the second is the hedging efforts of indemnificatory housing investment; the third is to what extent financial risks in real estate can be released.
More information can be found in the article “A Soft Landing for Real Estate Investment in 2012” by China's Economy & Policy-Gateway International Group.
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