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China's Real Estate Prices Bubble, with simple graph to compare: What is Chinese government doing?

Updated on May 7, 2012

China's Boom... or is it Doom?

China's economy claims to be the first to rebound, but is it all a mirage? The answer may surprise you, when you compare their real estate prices to that of the US "real estate crisis" in the past 5 or so years. Their real estate prices is growing at an even faster pace than the US real estate prices during the "boom", so what will happen when it all comes crashing down?

US real estate boom and bust

Wikipedia illustration of real estate prices in the US, look at 2000-2005, where it rose from 105 to 185.
Wikipedia illustration of real estate prices in the US, look at 2000-2005, where it rose from 105 to 185.
Graph from Morgan Stanley China, showing real estate price growth in 3 years
Graph from Morgan Stanley China, showing real estate price growth in 3 years

The boom, or the bust?

To compare the two graphs, we have to compare specific sections.

In the US graph, take the "housing index", and you'll see from 2000 to 2005, the index grew from roughly 105 to 185.That's... almost 80% increase in 5 years.

In the China graph, the prices went from 5000 to almost 8000 in 3 years. That's almost 60%. If you prorate that, that comes out to be about 100% increase in 5 years.

So the Chinese real estate market is inflating at an even faster pace than the US market.

To be honest, this may not be a totally fair comparison. The US graph is that of HOME prices, whereas the China graph is apparently ALL real estate, which would include commercial properties as well. However, the general "trend" is clear.

Indeed, if you watch the news, the Chinese authorities are trying everything to deflate the market, by enforcing marketing rules, tightening money lending by banks, and much more trying to prevent the prices going stratospheric. This had lead to a wave of selling further driving down some prices, which of course, leads to even more turmoil as those who had already invested are screaming for relief.

However, these prices are already at insane levels. Average citizen can never afford one of these units, and China's buildings have one of the shortest lifespans... Most buildings do not last 20 years. Many buildings are built only to look good, and massive graft and corruption plague the system.

If you invest in Chinese real estate, you better really know what you're doing.


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