Insights on the China Real Estate Market
China's Real Estate Boom
It is a fact that China's real estate have been booming for the past few years. Prices have risen sky high for its tier 1 cities like Beijing & Shanghai. Recently tier 2 cities are now getting more attention from the big property developers as well.
How Serious is the China Real Estate Asset Bubble?
If you read this section's heading carefully, you'll notice that I did not ask whether there is a real estate bubble in China. I'm taking it as a given that there is an asset bubble forming that can be compared to a "runaway freight train". The billion or rather the trillion dollar question that remains is how long will this bubble stretch and when will it pop with its painful consequences. In our global economy of sloshing hot money this impending collapse will have far reaching consequences for China and the world at large.
Its a fool's game to try and predict when this "bubble dance" will end. Any so called "guru" that tells you otherwise should be avoided at all cost. So let us instead focus on the symptoms to attempt to diagnose the health of China's property as an investment.
- Asset Prices at Historical Highs - The contagion of sky high prices have spread from tier 1 cities like Shanghai and Beijing, to less deserving tier 2 cities like Chong Qing. This is a sign.
- Unsustainable Growth - We could say categorically that all of the investment quality properties in the tier 1 cities and most of tier 2's are now out of reach of most Chinese citizens. Although there are no definite official statistics, anecdotal evidence suggest a large portion of them are left vacant. The criteria of affordability is one of the criteria of sustainable investment growth which China's real estate fails.
- Rising Social Cost - The unprecedented rapid property boom comes at a high social cost. The working class is left stranded with little hope of owning and participating in this asset boom. While the rich both local and overseas is throwing caution to the wind and taking on more debt that is keeping this bubble going. Resentment have also been growing due to the increase occurrence of forced evictions and awareness of these incidents in China. This social tension can have drastic consequences for China's real estate boom.
- Rising Inflation - Its not just housing prices that have been rising. The so called commodities super-cycle have led to an increase in nearly everything from everyday food prices, to production cost components like oil and workers wages. Any measures that China take can potentially have disproportionate amplified repercussions for the already fragile property market bubble.