China's Housing Headed For Serious Deflation?

An astronomical vacancy rate and prices that are far from affordable have prompted government action.

"Deeply concerned with the red-hot property market, the State Council, China's cabinet, announced on Wednesday night some new macroeconomic control measures to curb land and housing hoarding and speculation. The new measures include steps to readjust taxation and land supply, and to build more public housing for average-income families.

Whether the new measures will be effective remains to be seen, since the real-estate sector has been a target of Beijing's two-year-old austerity policy, which apparently has been unsuccessful. Hence the risk of a property bubble bursting in China is on the rise, as the housing vacancy rate has been growing remarkably even as prices continued to rise in the first quarter of 2006."

"What does a 26% vacancy rate mean to property developers? Normally, they will start checking themselves into the hospital once the rate goes higher than 10-12%, and start writing their wills when it exceeds 15%. So we are in very dangerous territory here."

Full Story: Property market headed for deflation

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