Property prices in China in freefall: is China crashing?

[Capt.Ridley_s_Shooting_Party]

So asks Forbes:

Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

So, is this a crash? I heard earlier this year that various hedge funds had started warning that a Chinese crash was imminent.

If China does crash, what are the effects on the global economy? A catastrophe? Further, what will be the domestic effects?

[bldysabba]

Shouldn’t make much of a difference to the outside world. The chinese economy is heavily export led. A crash in domestic consumption would probably just lower costs for chinese manufacturers and make chinese exports cheaper. I could be wrong of course, and await enlightenment.
ETA: One possibility could be that they stop lending to the developed world at cheap rates, and that could have fairly massive negative consequences

[Mijin]

It certainly isn’t a sudden, surprising shock the way that the credit crunch was to many economists and investors. China’s property market has been known to be propped up by cheap lending and government initiatives for some years now. There are even huge new towns almost entirely unoccupied…which seems rather strange in a country with 1.3 billion people.
Haven’t heard anyone panicking about this yet.

[JustinC]

It may actually be a help to the rest of the World, WRT commodities prices which are (IMO) artificially high in a world with little to no growth. As to its exports, China still has a current account surplus of 4% and $3.2 trillion in exchange reserves but exports have gone down to around 30% of GDP with its internal market taking up the slack.

Also I think the Forbes report is cherry-picking as house prices fell less than 1% in the last month in most cities in China.So a contraction rather than a collapse may be more accurate.

The PRC government are putting in strict rules - one house per family and limits on price per square meter are two examples. Also it is common for buyers in China to buy property with cash and avoid going into debt; A comparison to US ratio of housing loans to GDP is still only 15.3%, compared with a peak of 79% in America, shows how far China is from the problem in the U.S.

All in all, this could be good news for the economy if the reduction in prices in China is small and just a naturally occurring retracement rather than a full-blown crash. Many areas on the east coast are already too expensive for young people to buy which does not bode well for the long-term health of any property market.