The Bubble is Expanding: On-going Housing Frenzy taking China by Storm
By admin October 7, 2016

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Currently, China is undergoing an unprecedented housing boom. After tanking in 2014, the housing market rebounded in 2015 and went into overdrive this year. Based on the information provided by China Index Academy, home prices in 100 major Chinese cities have risen for 17 consecutive months through September. Also, the private-sector think tank indicates that September’s prices jumped 16.64 percent, outpacing the already impressive 13.75 percent gain recorded for August.

In recent months, the fever has even spread from so-called tier one cities like Beijing and Shanghai to outlying areas. In Shenzhen, where housing prices are incredibly unaffordable for average-income families, prices rocketed more than 40 percent in September. Prices also appreciated markedly in such lower-tier cities as Dongguan, Nanjing and Wuxi. The mainland’s housing market is undergoing “the biggest bubble in history,” said Wang Jianlin, chairman of property developer Dalian Wanda Group, in a recent interview with an American news outlet.

Chinese authorities are desperately trying to cool down an already overheated housing market; nevertheless, their efforts are unlikely to stop the increasing number of speculators from driving up housing prices, which is greased by low borrowing costs. In recent days, administrations in several centers tightened rules on purchases, with Sichuan’s provincial capital, Chengdu, and Henan’s provincial capital, Zhengzhou, barring people from buying a third property in some areas. Also, the city of Beijing abruptly toughened rules governing home purchases last Friday, catching home hunters off-guard. Purchasers will now have to put up a 35 percent minimum down payment for their first home – up from 30 percent – and no less than 50 percent for their second home.

Goldman Sachs Group Inc. has sounded a warning on the outlook for China’s property market, saying that any downturn will pose a challenge for metals, especially iron, ore and steel, with growing risks across the industry. Analysts at Goldman Sachs indicated that “as housing is a durable good and depreciates very slowly, overbuilding and excess inventory tend to exacerbate the downturn when demand suddenly falls.”

However, housing construction is critical to the Chinese economy. When construction suddenly slows down, as it does when the housing bubble deflates, it has broad ripple effects. And this phenomenal home price bubble and the construction bubble that comes with it are funded by ballooning debt: outstanding bank loans to households, mostly mortgages, surged 21 percent in August year-over-year.

Decline in housing prices have caused  uproars in China, which is exactly what authorities fear more than anything. But they also fear bubbles, having seen how they implode – and cause even larger uproars.

For more information:

China cities move to halt housing market frenzy

China’s Housing Frenzy is Still On

Here’s the Smoking Gun That China Has a Huge Housing Bubble

China struggles to curb housing bubble

Goldman Sounds a Warning on China Property, Outlook for Metals

Is the China property market bubble about to burst?

Thanks for sharing !

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