The Chinese Housing bubble? When will this be over?

There is a whole world to speak of when we discuss the Chinese Housing Market. Before we speak of the Chinese Housing Market let’s discuss the term “bubble” which is a special term used in the US associated with complicated mortgage backed securities trading and foreclosures. But such scenario is not happening in China. Runaway prices are happening and the Government is unable to stop it.

Property prices have risen again in August at an average of 7.5%. The National Bureau of Statistics said on Wednesday. The survey was conducted over 70 cities where, in this survey, 66 of the cities have reported price increases in the last month as compared to 62 in a survey carried out in July when the average prices were raised by 6.7%.  The August price increase is the highest since December 2010.

Zhiwei Zhang said in Hong Kong that this increase is due to the subtle policy changes in the sector since the new leaders took office in March.  The Government has not yet implemented the policies that they promised before elections. This sector needs to be given importance on a whole, China seems to be willing to allow the prices to increase and in turn builders are trying to reach the mark of 7.5%.

Unlike the “bubble” years of US, in China, most buyers on the high end of the market are cash customers.  For first and second time home buyers alike, no matter the income level, buyers look for investment property are required to put down at least 20%. This is quite different from the zero down arguments which were reported in the US during the 2000’s.

Still, having implemented the high tax rates earlier this year, in big cities in China like Shanghai, Bejing China’s Housing Market has continued to rise. These rising property prices are going to restrict the room for lower interest rates. Now that economic growth has rebounded and looks set to achieve the 7.5% target this year, meanwhile the Government’s priority might shift from containing financial risks and property prices. Government Representatives of China say they expect that the government will cut its growth target to 7% till December 2014.

Nevertheless, Nomura the Government Representative thinks that China growth will peak at 7.8% in the third and trend lower in subsequent quarters.

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