Is China pumping up a new housing bubble?

Davey Meelker

When walking in Chinese cities it seems to be undeniable that the sky is the limit. Literally. Everywhere are high-rise buildings, often with stunning architectural features. There is no stopping this huge development and at many places there are still new buildings built, both for apartments and offices. In the meantime it is estimated that there are more than 64 million vacant apartments in China. Isn’t that strange?

As we all know the Chinese economy is booming, which gave more people the opportunity to by property. Since the economy keeps on growing significantly with real estate prices rising accordingly, the prospect of high profits is continuously growing. This increases demand, which results in even higher real estate prices. Other causes for the rising real estate prices are the low interest rates and the increasing mortgages. Others say that the widespread corruption also increases the prices since every contractor involved in building the buildings had to ‘satisfy’ the government officials. Furthermore local governments rely heavily on the sales of property for their revenue, in some cases up to 50%.

Now China has arrived at the situation that local governments rely on the selling of property and high prices make it profitable to build more and more. Many people speculate in real estate, leaving many rooms empty. There is no property tax, so no incentive to rent apartments or offices out. When you look at apartment buildings around 9 pm, when most people are home but it is already dark, you see many lights out. This is not only because the inhabitants want to save electricity, this is because there are no inhabitants in the first place. The question is: how long can this go on?

It seems a matter of time before the huge oversupply of apartments and offices will lead to a downfall in prices. We can only guess what will happen next. Probably the economic growth will slow down which will be a hard blow for this country developing on such a scale. Maybe China will sell its US treasury bonds to keep up with its developments, which in turn can devastate the west. And western devastation will have its influence on China as well, as they are the most important consumers of Chinese products. Another theory is that the people of China are only putting up with this undemocratic government because of the growing economy and wealth. So will there be anti-government protests trying to reform the state? Only the time will tell…

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