Chinese cities set price caps to guard against falling property prices

China could face a potential crisis if the value of houses plunges below the mortgage value 

A prominent Chinese economist warns the country on the possibility of falling property prices and risks that may emerge once home values drop below mortgages, reported Bloomberg.  

In response to this risk, many Chinese cities have set price caps and a floor for property prices, while the vacancy rate in some regions has gone over 10 percent, said Li Yang, chairman of the National Institution for Finance & Development.  

Li said, “If one day the value of houses plunged below the mortgage value, people won’t even be able to repay their debt by selling the houses, and that would be a real crisis for the property market.”  

Moreover, Li added that cities have been struggling to contain price increases and speculation in the market, as China’s homeownership rate was 90 percent in 2020, whereas the global average was only at 69 percent.  

Germany’s homeownership rate was recorded at only 43 percent, while 57 percent of households lived in rented houses. Hence, China needs to create an effective rental market.  

More: Property prices in China’s Tier-1 cities jumps an average of 10.5%

Economies have been majorly impacted by volatility in the property market and mortgage financing. Distortion in markets such as the United States and Japan have also become the main triggers for longer recessions.  

Over the past year, China has extended curbs on the property market through many new policies and regulations, showing its greater determination to curb the market despite the economy’s slowing pace.