China is witnessing a recovery in the property market that was largely fueled by developers cutting prices and local city governments loosening policy.
Real estate according to Lan Shen and Stephen Green of Standard Chartered, is the "pre-eminent driver of China's growth, officially accounting for 12.4% of output in 2012".
In a proprietary survey of 30 mainland developers, Shen and Green found 25 developers said they expect to be building more in 2013 than in the previous year, and 18 said they plan to buy land in the next three - six months.
"As such, the findings of our survey suggest that 2013 will be a stronger year than 2012, not only for China‟s economy but for others too," write Shen and Green.
But it isn't all positive. Developers said that while they are seeing a recovery in real demand for homes, inventories weren't being cleared fast enough. What's more financing conditions are deteriorating for small developers and the number of defaults are on the rise.
And some warn of a bubble reforming in the sector. From the South China Morning Post:
"This is not a welcome shift," warn Mark Williams and Wang Qinwei at independent research house Capital Economics. They argue that China is already at risk of over-investing in property, pointing out that at the height of America's real-estate bubble, investment in the sector only reached 6 per cent of GDP.
"By that standard, China is now well into dangerous territory. Williams and Wang estimate there is demand in China for about 10 million new homes a year. Despite last year's slowdown, they reckon almost 11 million new properties were completed in 2011.
"Considering the amount of construction that was put on hold during the slump, they believe the current investment recovery could push the number of new homes completed this year up to 17 million.
"That is far more than the market can realistically support without a big drop in prices," they warn."
China's property market is still one that investors should be watching closely.
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