China’s real estate bubble

13 Mar

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Little Paris- the ghost town

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Property in China has rocketed over the past nine years resulting in a widespread fear of another bubble and the global crisis that would arise should it burst. Property in China has rapidly shot up with some cities experiencing growth in excess of 10 percent in 21 cities, while the largest two cities in China, Shanghai and Beijing underwent a huge amount of growth in the property market in excess of 20 percent. (BBC). Such extreme rises in the property are becoming increasingly problematic in China, resulting in ever increasing inequality as those with houses become wealthier and those without houses find it increasingly more difficult to purchase property, thereby contributing to the ever increasing divide in inequality, brought about by a large number of factors.     

The dramatic rise in property prices has can be attributed to a large number of factors. For instance, China’s approach in achieving economic growth has meant easy access to money; this means low interest rates and increased lending, thereby resulting in a large increase in demand for houses as consumers have a higher incentive to borrow and spend, while construction of property increases due to easy access to funds due to the low interest rates. In addition to this a cultural shift encouraging young males to become home owners, as is similar to the cultural shift in the UK while under the Thatcher government.

However as of 2011 the Chinese government have acknowledged the economic and have brought in a number of reforms in order to address the problem. The state has brought in a number of reforms to curb the demand; for instance, the purchase of houses in Beijing has been restricted to those who have lived in Beijing for a minimum of 5 years. This thereby stops the purchase of houses by foreigners done on the basis of making a profitable investment. In addition to this Beijing has prohibited the purchase of houses to 2. These examples of reforms in Beijing give just a broad sense of the action that the government has taken in order to curb in the property bubble and reign in China’s economic growth to a more sustainable level.

Jimmy

http://en.wikipedia.org/wiki/Chinese_property_bubble_%282005%E2%80%9311%29

http://www.bbc.co.uk/news/world-asia-china-24997241

http://www.forbes.com/sites/kenrapoza/2013/09/18/chinas-housing-market-continues-to-soar/

 

 

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