In the west we have become so used to hearing reports of the fantastic growth in the economy of China that we would be surprised if it should suddenly come to an end.
One perspective on the Chinese economic boom we don’t hear much about is the way real estate prices are shooting up. In some parts of Shanghai real estate prices for upper scale homes have increased by more than 50 percent in fewer than 12 months.
According to a recent story in Speaking of Real Estate, “The Great Bubble of China”, the meltdown in the United States, Europe and other parts of the world a couple of years ago is not likely to repeat itself in China any time soon.
For one thing most of the price increases are taking place for very expensive homes, as the Chinese high roller class is growing and throwing their money around much more freely.
Secondly borrowing rules in China are quite different from those that were common in the United States back in 2007 and 2008. There are no subprime loans in China, and just as significant requirements for down payments are much higher: 30 percent for primary residences, buyers of second homes need 40 percent down, and you need 50 percent down when buying raw land.
So things in China are a lot different and much less likely to collapse. With such large down payments the effect is to reduce speculation and there is not a lot of property flipping going on, simply because there are a small number of speculators able to get into the game.
Still we should be concerned, since the stability of the world economy is now very much a function of what happens in China. If we were to see a major dip in Chinese real estate prices it would have a dampening effect on the Chinese economy as a whole. And almost everyone would be affected by that.
Copyright 2010 Real Estate Blogss
I read at the beginning of the month that the middle class in China is struggling with home and apartment prices, not just the upper crust. Plus, the requirement of a 30% down payment is further making housing a distant goal for even modest apartments. What makes you think that trouble isn’t on the horizon there?
From what I’ve heard, the real estate market in China will slowly yet surely slow down in the following years because the number of loans will be limited. Some say that China’s financial market will collapse in less than 10 years because of the many loans they gave basically to anyone who asked. I liked your article by the way.
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This economic recession is affecting every part of the world and different businesses. But knowing how patient and responsible the Chinese are, China’s real estate is more likely to prosper than to collapse. Happy Year of the Tiger to them!
It has to collapse Andy . When they realize that their Yankee dollars are headed to zero , they`ll be buying up half of our continent instead of staying at home !
Uncle Dave
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The government report on jobs says there is a gain of 180k. The jo reports on the ADP report shows aloss of 55k…..ADP Mining looses 7000 jobs FED mining gains 9000….It is all Bullshit with no striaght answers. NO TRANSPARANCY whatsoever…And as some of the other folks have said while it is nice to hear about the I Pod….Really So What..They chatter about the I Pod but say nothing of Last months Foreclosure report which show filings consisitant but the bank takovers and short sales way up. As 2000 families per day are losing their homes who gives a damn what the jack off economists are saying. On Main street 2000 homes a day, well that is about 6000 folks being tossed out into the street…i am sure they are concerned about the Dow Jones.
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