China's housing market going through natural adjustment

The slowdown of China's housing market has prompted prophets to predict doom in the industry and even for the country's macro-economy. But analysts argue the market is going through natural and necessary adjustment, which is good for the economy.

The pessimistic market outlook keeps spreading as news stories about failures and bankruptcies of several real estate companies emerge.

Statistics provide proof that the overheated market is cooling. According to the National Bureau of Statistics, only 44 among the 70 major cities tracked by the government saw housing price rises in May, the lowest since January 2013.

In the first quarter of the year, leading real estate companies saw a month-on-month decline in land purchase volume.

However, experts said the cooling down has offered a chance for the problem-loaded industry to release risks.

Li Daokui, professor at Tsinghua University, said the housing market needs adjustment.

"The longer the unhealthy development drags on, the more bubbles will accumulate and more imbalanced and dangerous the economy will be," Li said. "Only through adjustment can housing prices return to a reasonable level which meets average people's expectations and is good for urbanization and social harmony."

Wang Xiaoguang, researcher at Chinese Academy of Governance, said the housing market has experienced a rapid but unhealthy even abnormal development in the past 15 years.

The overheated property market largely boosted by speculative investment has caused a series of problems, he said.

Rocketing rents have hindered development of the service sector, over-investment in the real-estate industry has impeded industrial upgrading and skyrocketing house prices have expanded the wealth gap.

The housing issue is also increasingly affecting the lives of China's young generation. Research carried out by the Youth Development and Research Center at the University of International Business and Economics showed that 90 percent of interviewees think their quality of life is related to a house.

A large number of young city dwellers said they would not get married or have children unless they have their own property.

Cao Honghui, vice president of the research institute of China Development Bank, said adjustment of the housing market would pose pressure to economic development but will not cause a crash.

"Banks have the ability to bear the pressure even if house prices and turnover volume drops by 30 percent. But we should prevent the risk from dragging on," said Cao.

Wang Xiaoguang said the country should be cautious about a sudden large-scale price decrease, as it would cause a huge impact in a short period of time.

So far, decreases in house prices have only occurred in a few places. Prices in first-tier cities remain at a high level and in secondary markets, price drops happened mostly in cities with high inventory.

Also, at least six cities have loosened controls over the property market to ease the destructive result a sudden decrease might cause.

"China's housing market is most likely to see a drop in sales volume and a price adjustment," Li Daokui predicted. "The adjustment could continue for a few years."