Don't panic at more bad realty news

Investors have been treated to a litany of bad news about the property market recently. China's National Bureau of Statistics reports that on average property prices in the country's 70 largest cities have fallen for three consecutive months and that in July price declines were recorded in 64 of the cities. In terms of gross floor area, residential property sales are down 9.4 percent year-on-year while housing starts are down 16.4 percent, the weakest data in at least five years.

Residential construction accounts for about 13 percent of GDP, directly and indirectly, so these data are worrying, suggesting a significant source of downward pressure on growth in the months ahead. With real estate loans accounting for about 20 percent of bank loans, falling property prices represent a risk to the health of the banking system as well.

The causes of the downturn in the property market are reasonably straightforward: income growth has slowed sharply in recent years and borrowing costs have gone up. Nominal GDP growth averaged 18 percent in 2010-11 but over the past two years has been only about half as high.