Worries about a slowdown in China's property market are threatening to overshadow the country's economic prospects, according to the Organisation for Economic Cooperation and Development.
The report from the OECD stated that while the failure of small developers wouldn't pose a significant problem, this wouldn't be the case with larger developers who could put bank lending at risk. It identified a key risk as being an "overly quick liquidation of unsold property."
China is expected to see growth of 8.5% next year, even though exports will be affected by weakened demand and a decline in the nation's overall competitiveness.
According to the OECD the economy could be helped through government housing projects which would support the construction and moderate the effects of inflation, possibly allowing the government to cut interest rates from the middle of next year.
The vice premier of China, Li Keqiang has already announced the property market is entering a critical stage but feels restrictions on transactions should be maintained even though sales are declining. Latest figures show October sales fell by 25% compared to September and prices fell in 33 out of the 70 cities monitored.
The government has placed restrictions on mortgages and home purchases in around 40 cities and is also aiming to build 10 million affordable homes to boost supply. Some analysts are already predicting that falling property prices in cities such as Shanghai and Beijing could force the government to relinquish some of its hold on the property market. UBS is forecasting property prices will drop by between 10% and 15% in first tier cities in 2012 and by 5% to 10% in other cities.
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