China Property Bubble May Lead to U.S.-Style Real Estate Slump

Dec. 31 (Bloomberg) -- Li Nan has real estate fever. A 27- year-old steel trader at China Minmetals, a state-owned commodities company, Li lives with his parents in a cramped 700- square-foot apartment in west Beijing.

Li originally planned to buy his own place when he got married, but after watching Beijing real estate prices soar, he has been spending all his free time searching for an apartment. If he finds the right place -- preferably a two-bedroom in the historic Dongcheng quarter, near the city center -- he hopes to buy immediately. Act now, he figures, or live with Mom and Dad forever. In the last 12 months such apartments have doubled or tripled in price, to about $400 per square foot.

“This year they’ll be even higher,” says Li in the Jan. 11 issue of Bloomberg BusinessWeek.

Will the China property bubble pop?

Beijing, China (CNN) -- When Crystal Zhang decided to buy a house last August, it seemed like a no-brainer.

For years, she had been spending a big chunk of her salary renting a studio apartment in Beijing, where she works as a mid-level executive in a multinational company. But her landlord kept hiking the rent, so she found a second-hand apartment and plunked 640,000 RMB (nearly US$100,000) as 52 percent down payment for a new home. She now lives in a cozy, one-bedroom flat and sets aside 25 percent of her monthly salary to pay for mortgage. "I hope to pay all up in five years," says Zhang. "By then I can start making some other investments."

China's Premier Pledges to Control Real Estate Bubble, Holds Firm on YuanBloomberg)— Chinese Premier Wen Jiabao said the government will cool property

Bloomberg)— Chinese Premier Wen Jiabao said the government will cool property prices, resist pressure for the yuan to appreciate and keep inflation at "reasonable" levels.

"Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize" them, Wen said yesterday in an online interview with the official Xinhua News Agency. China will "absolutely not yield" to calls for currency gains, he said.

China's property prices climbed last month at the quickest pace since July 2008, adding to concern that record lending and inflows of money will inflate asset bubbles in the world's fastest-growing major economy. Central bank adviser Fan Gang said Nov. 18 that the nation needs to be on alert for stock, real-estate and commodity bubbles as global capital flows into emerging economies.

China's Real Estate Bubble Remains a Hot Topic for 2010

Two days ago, on Christmas Eve, I was back with Chris Gelken on China Radio International talking about the hot topic of recent weeks, whether there’s a bubble in country’s real estate sector — and if so, what to do about it. We covered some good ground in an hour-long discussion, and I highly suggest that anyone who has been following my blog posts on the subject might want to listen in by clicking here (and selecting the first hour).

Some of the more important points discussed include:

• The main driver of mounting housing prices in China isn’t short-term speculation (“flipping”) but longer-term stockpiling of empty apartments as a “store of value,” like gold.

Property Bid Fires Real Estate

China’s government may be splashing cold water on the nation’s property market but one buyer has just doused it with gasoline.

Associated Press

A new national record price was paid this week for undeveloped land designated for residential use in Shanghai, prompting analysts to speculate the deal could singlehandedly underpin apartment prices in what is already one of the nation’s priciest and most closely watched real-estatemarkets.

Chinese Analyst Warns of Real Estate Crash

In the wake of Dubai’s debt crisis, wary analysts are closely watching China’s real estate market for signs of a similar crash. Among the more pessimistic observers is Chinese commentator Shi Hanbing who warns China to prepare for the imminent burst of the real estate bubble.

In his December 18 blog post titled “China Should Prepare for a Real Estate Crash,” Shi compares China’s current situation to Japan before the disastrous crash in the early 1990’s, and identifies alarming similarities between the two economies.

Shi attributes the burst of the Japanese asset price bubble to three factors: speculation and over investment in real estate, excessive issuance of loans, and a population structure change. All three, according to Shi, are characteristic of today’s Chinese economy

chinese buy more cars than americans as their economy and real estate booms

Although incomes still lag the West it is expected that China will be playing catch up with a 12 percent growth rate forecast. Furthermore the renmimbi is expected to revalue upwards against Western currencies which will increase consumer buying power and push up property prices for overseas buyers.

Indeed the booming economy is also helping to drive the real estate market.

The National Bureau of Statistics (NBS) reporting on Thursday said that Chinese property investment was up by 17.8 percent for the first 11 months of 2009 compared to the same period in 2008.

The NBS also said that property prices in its index of 70 cities rose by an annualised 5.7 percent in November, up from 3.9 percent in October.

When currency moves and demand led growth are considered, it is clear that Western investors in the Chinese real estate market are likely to see excellent capital gains denominated in their own currency.

Beijing looking to real estate as driver of economy

China's leadership is unlikely to take big steps next year to rein in the nation's booming property market, as rising real estate values are seen as key to the development of a consumption-driven economy and backed by policy goals laid out for 2010, according to an analyst.

Deutsche Bank's chief economist for greater China, Jun Ma, said the annual meeting of the Central Economic Work Conference, which concluded Monday, left him with the impression that China welcomes further gains in real estate prices in the absence of an external driver for the economy.

Among the pro-consumption measures laid out, leaders said they would continue to extend support for first home buyers and those who are looking to upgrade

"This suggests that the government is not ready to take tough measures to cool off the real estate market before export growth recovers to a comfortable level," said Ma in a research note Tuesday.