Will China's housing market hit the iceberg?

With People's Daily joining in, discussions on whether China's real estate market will collapse are much more heated than any actual momentum in the market

China's property market has been losing steam for most of this year with sales plummeting and prices sliding. The National Bureau of Statistics said on Friday that property sales dropped 8.5 percent in the first five months of the year compared to the same period last year.

The average price in 100 key cities was 10,978 yuan ($1,784) per square meter in May, down 0.32 percent month-on-month, according to the China Index Academy Ltd, a Beijing-based research institute that's wholly owned by SouFun Holdings Ltd. That marked the first month-on-month drop since June 2012.

High profile Pan Shiyi, chairman of Soho China, a major developer, said in late May that he does not have a positive look on the housing sector. He compared it to Titanic and said it will hit the iceberg soon.

People's Daily asked experts on how they view the slowdown of the property market, whether there will be an American-style sub-mortgage crisis or Japanese-style collapse, how big is the risk of property finance and whether there are opportunities in the property market.

Feng Jun, chief economist of Ministry of Housing and Urban-Rural Development, told the newspaper that the slowdown the market is experiencing is normal adjustment. Feng attributed the year-on-year fall in new projects and sales numbers to big basement data in 2013.

Liu Hongyu, leader of the Property Study Institute of Tsinghua University, attributed the month-on-month price decline in some cities to three reasons: high holding rates of properties of local residents, people moving out due to the structural adjustment of industries, and oversupply or too high prices, according to the People's Daily. He also considers price decline to be a normal market adjustment.

However, Sina.com reposted the report of People's Daily on Monday and is conducting an online survey. One question is whether the turning point in China's property market has come and 9,193 respondents at the time of publishing this story had voted yes, or 62.4 percent of all respondents, indicating that most online voters think the upward trend has come to an end.

Tsinghua's Liu Hongyu told People's Daily that China is not likely to have an American-style sub-mortgage crisis as the development level of property finance in China is far behind that in the United States where financial institutions hold more than 50 percent equity in all existing houses.

Song Li, vice-director of the Economy Study Institute of the National Development and Reform Commission, said the urbanization rate in Japan was 60 to 70 percent when the country witnessed an all-around property prices decline but China's urbanization rate, under the strict definition, is only 40 percent, adding that he thinks China's property market has not entered the downward trend but is undergoing a periodical adjustment.

Tsinghua's Liu Hongyu said there is an actual need for housing due to rapid urbanization in China and there will no be cliff drops and China should avoid the scenario where prices increase too fast and sustaining them becomes difficult. However, according to a report released by the E-house R&D Institute on June 11, the housing price to income ratio in Beijing in 2013 was 14.5, indicating that Beijing residents needed to use 14.5 years of household income, without spending any, to buy an average apartment.

Even though there will not be clip drops or sub-mortgage crisis, it's not to say that there is no risk at all, Liu added.

Real estate development loans are the major source of risks as developers have turned to "shadow banking" to get fund for buying land, development and construction, including mezzanine finance, property trust, private equity and overseas bonds since China tightened its credit policy in the second half of last year.

The shadow banking has definitely increased financing costs of developers but what is more worrisome is that it is unknown how large the shadow banking is.

Qin Hong, director of the Policy Study Center of the Ministry of Housing and Urban-Rural Development, said that as long as China does not use zero or low down payment policies and not enlarge leverage and deter speculation needs, property finance will not trigger systematic risks.

However, Shanghai-listed Shoukai Property Development Company Limited has rolled out a "zero down payment, zero monthly payment, zero interest rate" policy to promote its new apartments priced at 20,000 yuan per square meter in Tongzhou district of Beijing.

Souofun.com, a major property information provider posted this information on Monday. The "zero down payment" is only for one person, the subscriber of any apartment who wins the drawing when the company kicks off its sales opening ceremony. In fact, Shoukai will pay the down payment for the winner. The "zero monthly payment" is for three people who submit their intention for home-purchasing and also win a lot and Shoukai will pay for them. The "zero interest rate" is for all first-time home buyers, who buy from Shoukai, who will also pay this sum of money.

The "zero down payment, zero monthly payment, zero interest rate" type of promotion may well tell the story of Chinese developers and People's Daily also asked whether there are still opportunities in this industry.

There are still opportunities in the real estate sector, Yu Liang, president of Vanke Group, one of China's major developers.

Although the real estate industry is past its golden era where everybody could pick gold and has now entered the silver era, but silver is still precious metal, Yu said.

However, according to the Sina.com survey, 11,347 respondents voted no when answering the question "do you think properties are still good investment targets", accounting for 77 percent of all the respondents.