Review of What Next? a China Housing Crash

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Review of

What next? A China housing crash by JIN TAO

General Overview

The author discusses the current situation of residential property in China and argues that the boom days are over while the risks of real estate market are low. In recent years, property market has undergone a huge fluctuation. The price of houses increased sharply and then started to decrease. The same as other experts asserted, the author also considers that this fluctuation is attribute to real estate bubble, which is a nominal rise of property price without the support of the real economy. However, the author is optimistic in residential property market in China, he argues that the mature market has a long way to go with a lot of new opportunities and uninterrupted purchasing power. Hence he provides 4 reasons which account for this trend.

Firstly, although the home ownership rate in China is the second highest in the world which is on US’s heels (89%), there is only 55% of the population is urban, therefore the trend of urbanization will drive demand for housing sequentially.

Secondly, consumers based on a view that property price will continually increase after a new area became thriving. This pattern is repeated across the country. Thirdly, the unprecedented income growth in China has made a contribution to mighty purchasing power in this country. There are about 13 million marriages every year in China, and these new couples all need new houses for their marriages. Finally, a crucial precondition for the burst of price bubble is high level of leverage. However, the leverage of residential property consumers is quite low in China, because 15% of them over the past 3 years paid cash for their houses, even those using mortgages are required to pay the deposit of 30%.

Hence, the author predicts that the fundamental demand for properties in China remains healthy, and native sales volume will reach up to 10 million in 2015.

Comments

This article specifically analyses the reasons why property market in China can be continually prosperous in the future. The data are properly used and examples are quite persuasive. Furthermore, the basic opinion from the author is reasonable and critical. Although the price bubble definitely exists, some other new opportunities and the inherent advantage of large population base in China have coordinated the balance of this market. On the contrary, some previous studies just focus on the bursting of price bubble, which are very extreme and unilateral.