He successfully predicted in 1997 that Hong Kong's real estate would plummet 50% and mainland China would experience deflation. Because he has always been bearish on the real estate market, he is jokingly called the 'Air Force One' of the economic circle. He is economist Xie Guozhong.

Problems with Usury Make Housing Prices Even More Unsustainable

Reporter: Under purchase and loan restrictions, housing prices have shown signs of loosening. How do you view the current real estate market?

Xie Guozhong: Today's high housing prices are the result of many factors. The bubble will burst one day, and it has already begun to burst.

The last wave of the real estate bubble was pushed up by usury. Now that usury has problems, housing prices cannot be sustained either.

Reporter: You previously said it is normal for China's housing prices to fall 50%. When will that happen?

Xie Guozhong: I originally thought it would be in 2012. At the beginning of this year, I changed my forecast. At that time, I thought the decline would begin in the second half of this year, but the decline would not be completed in one step. It would first drop 20%-30%, then there might be fluctuations, and by 2014 housing prices would fall 50%.

Xie Guozhong: The Bursting of the Real Estate Bubble Is a Great Thing for China

Reporter: You mean there will be fluctuations in between?

Xie Guozhong: Yes, just like when the A-share index fell from 6000 points, some people would enter the market at 5000 points to support it. There are always bargain hunters. After housing prices fall 20%-30%, those who urgently need to buy a house and some investors will enter the market, and transaction volume will pick up. There may be fluctuations in between.

How can wage earners afford to buy houses now? In second-tier cities, where it costs 10,000 yuan per square meter, how many people can afford it? This market is mainly driven by speculative demand, which mainly comes from bank loans. How big is the bubble? So it is inevitable that the real estate sector has entered an era of significant decline.

Reporter: Some people, including Ren Zhiqiang, believe that housing prices in prime locations will not fall because resources are scarce.

Xie Guozhong: It is impossible for them not to fall. Housing prices in Manhattan will also fall.

In another 10 years, China's population will begin to decline. After 10 years, housing prices will not rise; they will only fall, not rise. In any country where the population begins to decline, housing prices will only fall. At that time, Japan's housing prices were adjusted downward by 7% each year. Population aging is a huge force that will have a very large impact on China in the future. After population aging, a society's burden becomes heavier and heavier. After population aging, don't talk about whether the property market will rise; it will not rise.

Rigid Demand Is a Hyped Concept

Reporter: What do you think of regulating real estate through administrative means such as purchase restrictions?

Xie Guozhong: Because this policy was introduced to suppress housing prices, the peak of housing prices is not as high as I expected. It is like when the stock market was at 5000 points, a series of policy combinations prevented it from rising to 6000 points before falling, and instead it fell from 5000 points. But the result is the same; ultimately it will fall to 2000 points.

Reporter: What about banks raising interest rates on first-home mortgages? Hasn't that also inadvertently hurt many people with rigid demand?

Xie Guozhong: In Beijing and Shanghai, 80% are non-locals and people with multiple homes, not rigid demand. Rigid demand is a hyped concept. As for the interest rate on first homes, this is the role of market regulation. Because inflation expectations have risen and credit control has tightened, the price of funds is higher. When flour is expensive, bread is of course also expensive.

Reporter: A while ago, the China Banking Regulatory Commission said that China's banking industry can withstand a 40% drop in housing prices. If prices really fall 40%, can China's banking system withstand it?

Xie Guozhong: China's real estate bubble is different from that of other countries. Now it is transferred to the government through real estate. Investment in the stock market will have a series of consequences. Some bad debts in banks are inevitable. The money is taken by the government, and the bad debts are also the government's business. I think it is a matter of moving from one pocket to another, not that serious.

Reporter: You suggest that investors sell their vacant houses as soon as possible. After selling the houses, what should they buy?

Xie Guozhong: Keep the money for now. The RMB will not depreciate. No matter how much internal inflation there is, it dares not depreciate. If it depreciated, all the money would flow out of China.

However, if you want to sell now, you definitely won't be able to. Many friends who are selling houses have no one to even look at them. There is no way but to hold on. If someone comes to look at your vacant house at this time, you must sell it. This is a good opportunity. If housing prices fall next time, the decline will last three to four years.