Growth to slow in Chinese house building, Fitch predicts

The Chinese house building sector is expected to see slower growth over the coming year, according to Fitch Ratings.

The ratings agency’s prediction could add to concerns that the Chinese property sector is in the grip of an asset bubble.

A new report by Fitch argues that China’s strict regulations restricting home purchases and tight overall bank lending to homebuilders will cause the residential property sector to slow over 2012.

Vanessa Chan, a director in Fitch’s corporates team, says: “Overall, slower growth in the sector means some homebuilders may need to lower prices to generate contracted sales, which may create pressures on their near-term profitability and cash flow cycles.”

Chan adds that small homebuilders are more likely to be affected by this, but claims China’s growing urbanisation and rising household income will support the residential property sector in the long term.

Earlier this month, the People’s Bank of China warned that property prices are approaching a “turning point” due to falls in real estate prices, property investment levels and land transaction volumes.

Fen Sung, the manager of the Premier China Enterprise fund, recently scaled back his exposure to Chinese real estate after claiming that property prices in the country could fall by up to 20% as housing demand starts to tail off.

Julian Chillingworth, the chief investment officer at Rathbone Unit Trust Management, also says a Chinese property bubble is a “real issue” and warns that “quite big price cuts” may soon be seen in over-valued areas of the market.

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