China’s Real Estate Bubble

China has been nothing short of a financial miracle. In just 30 years, this state-controlled economy became the world’s second largest, deftly managed by government policies and decrees.
But one of the biggest concerns is the real estate and construction that may have created the largest housing bubble in human history. If you go to China, it’s easy to see why people concerned about this problem.
Many place in China are building new apartments and houses right now. But nobody is living inside, many cities are just like ghost city, Why are they empty? They have actually been sold, but most of them are sold to those investors. Owned by people in China’s emerging middle class, who now have enough money to invest but few ways to do it. They’re not allowed to invest abroad, banks offer paltry returns, and the stock market is a rollercoaster. 15 years ago, the government changed their policy and allowed people to buy their own homes and the floodgates opened.
People believed that their property price would always go up by more than inflation. Actually, property values have doubled and tripled and more. So people in the middle class have sunk every last penny into buying five, even ten apartments, fueling a building bonanza unprecedented in human history. No nation has ever built so much so fast.
As we know, the growth of GDP is very important to a country, and one of the biggest facts inside the GDP is the real estate. Real estate has become the main driver of growth and has been for the last few years. “Some estimates have it as high as 20 to 30 percent of the whole economy”. (Stahl, CBS, China’s Real estate bubble, http://www.youtube.com/watch?v=uxjwhk1ktNw)
The houses in China are really expensive today. A typical apartment in Shanghai costs about more than 45 times the average resident’s annual salary. “In Beijing, the price of houses near school are really high, it’s about CNY70,000(about USD $11,400) per square meter. In the latest housing data, new home prices for September rose at the fastest pace in almost three years. In Beijing, new home prices were up 16%, Shanghai 17% and Shenzhen 20% from a year ago”. (Chiou, CNN, China’s crazy property bubble). This is a big bubble, once it blows, it could be a huge disaster.
To try to prevent the disaster, the Chinese government decided to act. Since 2011, China has had what amounts to a one-apartment policy, where it’s very hard to buy more than one apartment in major cities. Because of this, prices plunged. The bubble was being tamed. And yet, the taming was creating all kinds of unintended consequences.
Many developers are in debt, sometimes, when they don’t have enough money to move forward, the project will stop in the middle of its construction. This is a huge problem. It could become a debt crisis because the huge loans most of the developers took out. If they can not repay them, the whole economy will seize up. The government’s greatest fear is that all this could lead to social unrest and that’s not hypothetical.
From my side, I think this is really not a good sign to Chinese economy, once it’s getting out of control, the economy of China, even the world will face uncertain problems. The basic problem is that more and more people in China are trying to live in the city, but they can not afford those apartments, this socialization problem will be one of the top concerns to the top leaders of Chinese government.