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| A group of newly-built properties in Hefei, |
After years of housing prices gone wild, China's property bubble is starting to deflate. Residential prices are heading downward in some major cities, raising the prospect that the Chinese economy may slow more rapidly than anticipated.
Real estate is a foundation of China's phenomenal growth record in the past 20 years, and it is also a favored investment of Chinese looking to get better returns than bank deposits pay. Local municipalities and provinces depend on rising prices for land sales as well to fund infrastructure projects. So, a real-estate bubble was among the biggest economic risks China faces.
A downturn in property and apartment prices would harm Chinese industry and investment. China is a housing-led economy, in which property construction alone accounted for 13% of gross domestic product.
If the Chinese housing market slows faster than people had expected, the impact would be felt in a number of markets that export heavily to China. Many Latin American and African economies have shifted their focus toward Chinese demand for their raw materials, and many Western firms, including U.S. retailers and fast-food chains, now bank on Chinese consumers feeling wealthier to make up for stagnating sales elsewhere.
The housing slowdown comes at a time when there is evidence China's growth is slowing. A sharp fall real-estate prices would batter investors, banks, construction firms and other sectors.