Property oversupply to be digested at most within 2 years

A property construction site in Nanjing, capital of Jiangsu province. The average price of a new home in 100 cities tracked by the China Index Academy was 0.92 percent lower in September compared with the previous month. DONG JINLIN/FOR CHINA DAILY

China's all-important property sector is expected to return to normal in two years, said a leading economist.

The average price of a new home in 100 cities tracked by the China Index Academy was 0.92 percent lower in September compared with the previous month, the fifth straight monthly decline, according to the firm, a subsidiary of real estate portal SouFun Holdings Ltd.

The total value of housing transactions in the first eight months was 8.9 percent lower than a year earlier, according to the National Bureau of Statistics.

Figures for September have not been released.

The slowdown in the real estate sector is dragging on the economy. Together with construction, real estate accounts for about 15 percent of China's GDP.

Weak performance of this sector also affects many upstream and downstream industries such as cement, steel and chemicals.

Although many economists forecast the housing market will remain under downward pressure, some remain optimistic.

Cheng Siwei, dean of the School of Management of the Graduate University of the Chinese Academy of Sciences, said that the real estate sector will see healthy growth in the long run.

Cheng made the upbeat comment at the Oxford China Business Forum 2014 in Beijing recently.

The urbanization rate was 53.7 percent in 2013. An annual 1 percentage point increase in the urbanization rate could mean another 11 million people or more moving to cities each year.

Meanwhile, demand for new homes remains robust from recent graduates, newlyweds and current owners who are trading up.

According to Cheng, the oversupply could be digested in 20 months or at most two years, and the housing market will return to normal.

Most of the 46 cities that imposed limits on home purchases starting in 2010 have lifted those curbs to spur home sales.

"The demand for housing in China is still strong in major cities. We still need to restrict housing purchases in these cities … But for some medium-sized or small cities, we should encourage people to move to those cities," he said.

Breaking down property investment by source, about 30 percent is from bank loans, 39 percent is from developers' internal funds and 31 percent is from buyers' deposits, so bankruptcy risks are not high, he said.

The annual average GDP growth rate in the new "economic cycle" that started last year and will run through 2022 will range from 7 to 8 percent, Cheng said. Inflation during the same period will be no higher than 4 percent, he said.