Is there a real estate bubble in China ?


This is an ongoing subject that has never been discussed on this blog, it has it pros and cons, many people are frightened, others are optimistic…


Can prices of rel estate in China go up forever ? This is the optimist point of view. What is true is the the country is undergoing its largest urbanization in all its history, maybe the largest urbanization of the world history. Migrants are buying houses in town when the growing middle class wants to move in better flats.


2013 is a very tipical Chinese year so far, 20% price increase, 35% of increase in the market. Everything is goin smooth. Prices rose in all the great cities, Chinese real estate market is still booming.


Now there are growing signs of concern. Wang Shi, the real estate mogul, founder of the largest real estate developer China Vanke showed some worries a few days ago. He said the market was a bubble. The Economist reports that other real estate tycoons are prudent, Wang Jianlin, of China Wanda has alnoledged that parts of the coutry are a bubble and Li Kas-Shing, a Hong legendary investor is selling his mainland assets.


The danger is not in Shanghai or Beijing. These cities have a wide potential for growth and the measures taken there to curb down the real estate market might artificcially harm the balance.


This blog has taled about these measures, restricions for couples, for outsiders and other situations. The trouble is in other cities, such as the Yingkou Coastal Industrial Base. There s supposed to be industry there, but the place has rows of empty accomodation buildings, everything is dark at night and there is no sign of a bright future regarding people living there. This is city of the future, but the future is taking some time to arrive.


There is actually 200 new towns planned all over China, sometimes with strong projects, sometimes without real logic, and it is expensive for China that has to build the infrastructures. There is oversupply of accomodation in China, after years of undersupply. The pace of building of new homes is faster than the sales, which can quickl become a problem, and the situation might even be worse than expected since many homes are actually bought by the local governement or banks. The market is hard to understand.


Moreover, it seems that most of the developers are hugely in debt, and it could go wrong for them if there is a downturn. It seems that the real estate mouls are diversifying, fearing losses in real estate. They are buying abroad, in Europe and the Usa, or in other industries, like Vanke that is becoming a movie studio.


Will a bubble burst ? Nobody really knows but there is some clues, but it could take years if it happens.











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