Things will soon come crashing down for China’s hot real estate market, with the Chinese banking system failing to generate sufficient credit to sustain further increases in property prices, said Gillem Tulloch, Managing Director of Forensic Asia Ltd.
“We think that the bubble will likely burst some time in the next year,” said Mr. Tulloch, in a recent interview with the Wall Street Journal’s MarketWatch.
The country’s state-run banks will come under pressure to significantly rein in lending, leaving the economy short of more than 11 trillion yuan in credit, he said.
Credit needs to grow at double-digit rates to sustain price gains, said Mr. Tulloch, adding that the lending boom is a sign of a market swept up in bubble dynamics.
Another round of double-digit credit growth is needed to sustain further increases in the already increasing property prices in China. “We are thinking they won’t do that, because the non-performing loans will become a problem,” said Tulloch, referring to the central government’s ability to control credit that flows through state-run banks.
Previously low interest rates may be gone as the government tries to control consumer-price inflation, he said. Mr. Tulloch believes the central government will need to raise its base lending rate by two percentage points by end June.