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."
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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 recipefor future growth."
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