A ‘collapse’ of the Chinese property market is being predicted as fears abound over whether the country can keep up with its rapid growth.

Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund (IMF), suspects there will soon be bad news for property investors in the affluent country and suggests it will also hit the banking system.

Talking to Bloomberg Television, Rogoff said “You’re not going to go a decade without having a bump in the business cycle in China.

“We will learn just how important China is when that happens. It could cause a recession everywhere surrounding the country, including Japan and South Korea, and it will be horrible for Latin American commodity exporters.”

China looks likely to take over from Japan as the world’s second-largest economy this year.

However high levels of lending, rising property values and rapid economic growth have prompted the government to begin taking measures to slow the country down and leaders are reportedly looking into introducing a trial property tax in the near future.

This may have contributed to a slump in real-estate sales as the value of property sales dropped in May by a quarter while prices increased at an annual rate of 12.4 percent.

“Their response to the latest financial crisis has clearly raised the risk that they have a debt-fuelled bubble in the economy,” said Rogoff, who in 2008 predicted the failure of big American banks.

However not all economists agree. Stephen Roach, Chairman of Morgan Stanley Asia Ltd. said recently: “The property boom isn’t a bubble.

“While high-end apartments are over-heating, residential demand will remain robust as rural Chinese migrate to the cities.”

Nevertheless Xu Shaoshi, minister of Land and Resources, worries property prices will fall in some regions of China in around three months.

Standard Chartered Bank agrees and argues China’s leading cities could see prices plummet 20 to 30 percent by the end of the year, while lesser-known cities could see declines of 10 to 20 percent.

Standard Chartered Bank analyst Steven Green said: “With new supply meeting a still-reticent buying public, we believe developers will be forced to cut prices.”
The bank argues China’s housing market dipped after anti-speculative policies were unveiled.

The regulations ditched ultra-low mortgage rates, tightened down payment rules on purchases of second homes and luxury apartments and blocked bank financing for third-home purchases. Banks were also required to set aside more cash as reserves.

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