In 2014, China’s real estate market has begun to show signs of slowing down. China’s real estate market slowdown this year is partly due to the base effect from the strong upturn in 2012 and 2013, and the market is now in an adjustment period. Real estate prices in China fluctuated quite a great deal in 2008, 2010 and 2011, primarily due to the government measures to limit credit loans or housing purchases. This year, however, price changes are not driven by government’s intervention but by market itself, which indicates that market fundamentals have changed.
During the past decade or so, the urbanization in China increased housing supply to the level which surpassed the actual demand. Such oversupply of housing is the key factor that drove the real estate market downturn. In addition, the weakening of elements that supported the actual demand and investment in real estate is another factor behind the sluggish real estate market.

Amidst such a real estate market correction, there are concerns of a hard landing for Chinese economy driven by real estate bubble burst. There is little possibility for China’s real estate market to go bust in an immediate future, however, as was the case in Japan in the past. The Chinese government is capable and has the will to fully control and manage the pace of real estate market slowdown. Notwithstanding the risk of real estate market contraction cannot be overlooked since it may eventually result in a hard landing for Chinese economy. All things considered, what is going to be the trend of China’s real estate market in the coming years? First, from the perspective of supply and demand, it is highly likely that house prices in tier one cities rise slightly whereas house prices in tier three and four fall. Second, real estate developers will cut house prices in order to reduce the number of unsold houses. Third, the real estate industry is expected to become more concentrated as market consolidates through a series of M&As. Lastly, from a policy perspective, the government is expected to restrict speculation on real estates in tier one cities while increasing the supply of housing for the low and middle income classes.