It's a good thing that there is a property slowdown.
10 years ago, most properties were sold to owner-occupiers who actually lived in the property.
But in recent years, it flipped to 86% being sold to investors, with many properties being left empty on the assumption that prices keep increasing.
So 2 things come out of this:
1. The construction industry needs to reduce in size. So the government deliberately deflating the market is a good thing.
2. This will also lower costs for construction materials, which will make existing property projects more profitable or reduce selling prices.
But an orderly deflating of property prices means keeping prices stable or a small decline.
Then the effect of increasing wages and inflation will make property much more affordable.
That could be in the region of 10% per year, which means in 7 years time, nominal wages have doubled whilst housing prices could still be the same.
That would bring the [house price to income ratio] from 17 to 8.5, which is comparable to the UK.
And given Chinese income levels, we could see nominal wages increase by 7% per year
That means nominal incomes double in the space of 10 years, and the [house price to income ratio] dropping to 4.25, which is below the US at 5.4. Theoretically, that means house prices in China could actually see further modest increases and still be affordable in 17 years time, but it wouldn't be prudent to expect or want to see property prices increase.
In comparison, when the Japanese stock and property bubble burst in 1991, Japan was already a developed country so wages only grew at <1% per year plus barely any inflation. Plus the Japanese property market was much more overvalued in comparison, so there was no alternative but for prices to come crashing down.
So in conclusion, I would say Chinese policymakers have done a far better job so far, in comparison to the housing bubbles seen in Japan (1991) and the USA (2008).
