Are Chinese Real Estate Prices Likely to Burst?
In this part of the world we have grown so accustomed to hearing reports of the rapid expansion of the Chinese economy that we would be surprised if it should suddenly come to an end.
One perspective on this growth we seldom hear much about is the significant increase in Chinese real estate values. In some parts of Shanghai real estate prices in upscale areas have jumped by more than 50 percent in the last year.
According to a current story in Speaking of Real Estate, “The Great Bubble of China”, the meltdown in the US a few of years ago is not likely to repeat itself China any time soon.
For one thing most of the price increases are taking place in upscale areas, as the Chinese high roller class is getting larger and buying to impress.
It is equally important that lending practices in China are quite different those that held sway in the US back in 2007 and 2008. Subprime loans do not exist in China, and equally important the down payment requirements are much higher: 30 percent for primary residences, buyers of second homes need 40 percent down, and 50 percent for raw land.
So things in China are a lot different and much less likely to collapse. With down payments that high the effect is to reduce speculation and not a lot of property flipping happening, simply because there are a lot fewer speculators able to afford the entry fee.
Nevertheless we have reason to watch the Chinese economy closely, since the economic stability of the world is now very much dependent on a stable Chinese economy. If there were a significant slump in the Chinese real estate market it would have a dampening effect on the chinese economy as a whole. And almost everyone would be impacted by that.
blogeasy :: Mar.15.2010 :: real estate trends :: 3 Comments »
I just read somewhere that the Chinese government is looking at providing subsidies to help the middle class in their homebuying endeavors. Do you think that in itself would serve to blow up the market a bit?
I heard that the real estate market in China will collapse in the next 5-6 years or so because of these insane loans that they give basically to anyone who asks (I`m exaggerating but you get the point). It will collapse if the situation in the present will maintain. Taking into consideration what Angela said, that they will provide subsidies in order to help the middle class purchase properties, it will surely collapse.
Sounds familiar, doesn’t it.