Chinese property market soaring high, but leaving mixed feelings

Written by Sewon Oh || 25 Sep 2013

The growth of the property and housing market is a key part of Chinese economic growth, but at the same time, there is increasing worries of a major bubble.

Chinese property market price has reached a record high in August, growing in average 8.3% in housing price in August in 69 major cities out 70.

Because of numerous restrictions on other financial products, the Chinese tend to invest in other sectors such as the property market which has created a huge demand driving the price increases. The Chinese government has made attempts to restrict the growth including, enacting several regulations such as no bank loans for a person purchasing a third house.

However, even during the recession, prices of Chinese houses have continued to grow which has given the Chinese government a strong challenge in trying to further tighten the market. At the same time, the effort of restraining appreciation of Yuan is resulting in a higher liquidity, and that eventually leads to the increase in asset prices, possibly leading to housing market bubble. That is more than what Chinese government wants to have. 

Because of the economic slowdown, China is very careful about its economic policies. Chinese government should not let the price rise without control as that will raise the risk involved in the market. But at the same time, China also wants to keep the market growing to keep the high economic growth rate. In November 2013 at the Chinese Communist Party meeting, there will definitely be some reforms announced regarding this matter, but it is probable that the market will have stricter enforcement of restrictions to prevent a huge bubble forming in recent future. Whether it be a restriction on banks’ mortgage or a direct intervention with new law, Chinese government will bring new measures to this market.

 With the restrictions, the market will be downsized, bringing the economic growth rate down. With GDP growth slowing, there is a risk that there will be a pullout of capital from investment, which not only shrinks Chinese economy, but also the Asian market, as many nations are depending on China for export and import. Although the shock will be less surprising than the bubble bursting as many people are predicting the new restrictive measures, the slower downward movement could potentially turn into the equivalent of the “Lost Decade” of Japan. Even though there is a bright side of less speculation in the property market, the possible loss in economic growth could be a significant blow to a stabilizing Chinese market after the global recession.

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