Has China’s property bubble finally burst?

China’s real estate bubble has popped, says Nomura. The sector – long the subject of dire warnings by bearish analysts – “has passed a turning point”. It is “no longer a case of ‘if’, but rather ‘how severe’ the property market correction will be”.

A decline in real estate investment in four of China’s 25 provinces in the first quarter of this year is the first sign of slump that will spread nationwide, the analysts argue. Given the economic importance of real estate – construction and related industries are over 15% of GDP – that’s likely to push growth below 6% this year.

There are certainly reasons to be “increasingly worried”, say Tao Wang and Harrison Hu of UBS, although the outlook doesn’t have to be as bad as some observers expect. “The government still has the means and willingness to mitigate a property downturn, including by increasing infrastructure investment and relaxing property policies.”

As a result, the slowdown should be manageable and GDP growth is likely to average around 7% over the next two years. There is a small risk of a much more serious downturn that could see growth fall to 5% next year.

If the worst happens, the spotlight will be on the country’s financial sector as much as the builders, says Simon Rabinovitch in the FT. While individual homebuyers are typically not highly leveraged, there’s good reason to be concerned about the banks’ exposure to real estate developers and property investors, especially off-balance-sheet exposure in the fast-growing shadow banking system. Bad loans could be much higher than anticipated.

Still, “in one important respect, a property downturn would be a welcome development”. The economy has become far too reliant on property. “The sooner it ends, the sooner China’s banks will be able to find a more balanced recipe for future growth.”

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12