A Difficult Year Looms for China's Real Estate Market

For Beijing, the process of tackling the deep structural problems of China's economy, including in the all-important real estate sector, is underway. More and more cracks are showing in the real estate market. Major cities such as Beijing, Shanghai and Guangzhou are experiencing strong growth bolstered by robust demand, but the unrestrained property growth of earlier years is taking its toll on a few smaller cities.

The central government will do what it can to prevent a crisis from forming and spreading, but combined with a liquidity crunch and sputtering local industries such as coal and manufacturing, an adjustment in the local real estate market is inevitable this year. The process is necessary to avoid creating an even greater real estate bubble, but that does not mean it will be any less dangerous for a government that is already facing high levels of debt, industrial oversupply and unemployment as well as overall declining economic growth.