Property market so far so good

It would not be an exaggeration to say that China's housing market has proven resilient to both economic downturns as well as regulatory constraints. The key questions to ask are what supports this resilience and whether the housing market will resist future setbacks.

It is admittedly difficult to generalize about China's housing market. China is a large and diverse country and the different regions are at different stages of development. Nevertheless, there are a few common factors that support the long-term outlook of the housing market.

First, China's private housing market is relatively young, having taken off only in the late 1990s. Demand for private housing is yet to be fully satisfied. By some estimates, less than half the demand of white-collar workers has been satisfied, and there is still large unmet demand from both first-time homebuyers and upgraders, which lends underlying strength to the urban housing market.

Second, people's incomes have benefited from several decades of strong economic growth. Although housing prices have risen rapidly in some cities, incomes have also risen. Affordability had declined in some cities where house prices rose faster than income, but the divergent trend has been tempered by the 2011-12 downturn. In key cities such as Beijing and Shanghai, nominal growth in disposable income per capita in 2012 remained high at around 11 to 12 percent year-on-year while property price increases were more subdued.

Third, urbanization will likely continue and even accelerate in some cities, offering support for the housing market.

Fourth, a typical homebuyer, especially a first-time buyer, tends to rely heavily on savings and less on financing. China's large household savings pool thus mitigates potential risks of over-leveraging in the housing market.

Having outlined some favourable factors that underline the sector's long-term fundamental support, this does not mean of course that the housing market will only go up. Corrections in prices have happened before and will happen again. Housing market prices have been generally determined by supply and demand.