Gady Epstein of Forbes

On September 1, Forbes published an article by their Beijing correspondent Gady Epstein titled Olympian Bust? about China's "increasingly bleak" property market.

Last week, several articles appeared in various publications backing up Epstein's idea that China's real estate market is headed for a slump. The Economist published What goes up subtitled 'The housing market provides some nasty shocks to China’s new middle classes'. The International Herald Tribune published Chinese banks brace for housing aftershock while The Wall Street Journal looked at Chinese government measures to prevent a bust: China aids home buyers to curb impact of slump.

Danwei asked Epstein for an update about the property market since he filed his story for Forbes in September, and for a few predictions about real estate for the next few years.

Has the Beijing property slump described in your article continued?
Yes. Prices are supposedly holding steady (or even going up), but the key figure to watch for is transactions. No one's buying apartments, no one's signing big leases on office space. The secondary market for apartments looks ugly as well.

Is it going to get worse?
I think it will definitely get worse in the short term. The central government has just announced measures intended to prop up the housing market, including a lower down-payment requirement, but it's obvious that the public has lost confidence in the market and is taking a wait-and-see approach. People no longer assume, as they did for much of the last five years, that buying an apartment is a can't-lose investment.

How will the global financial crisis affect the Beijing property market?
In the short run, it will have both a psychological and real impact, as people and companies delay big purchasing decisions either because they're nervous or because they're short on cash or credit.

In the long run, the world could look to China to lead the recovery, and it's possible that a year from now, people will be talking up real estate in Beijing again. I suspect we're looking at more like 18 months to two years, in part because the financial crisis will continue to play out for some time. But it's impossible to see that far ahead. Many have looked foolish in the past for betting against China, just as quite a few people looked foolish for betting only 12 months ago that the Chinese stock market would keep going up.

Is there any danger in China of slowing economic growth leading to foreclosures on a large scale?
There is a danger of this in the next year, as homeowners begin to see their home values fall below their mortgage balances. But personal savings are high in China and the mortgage market is not as wildly creative as in the U.S, so the danger, while real, is not a systemic threat along the lines of the U.S. sub-prime disaster.

Most economic analysts who watch China agree on one thing: the long run picture — five, 10 years from now — looks good for Chinese real estate. That's because of ongoing urbanization and because there are still few places for Chinese to park their money, besides banks, the stock market (!) and the art market (!!).