China’s Housing Market Isn’t in a Bubble After All

China’s Housing Market Isn’t in a Bubble After All

China’s housing market is starting to resemble a Bermuda triangle for economists: time and again the smartest forecasters wade in only to get it wrong.That’s the view of Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, who describes the latest talk of a housing bubble in the world’s second biggest economy as a recurring myth. Instead, rapid price gains in the biggest cities merely reflect underlying demand and a supply shortage, fundamentals that are very different to the kind of credit-fueled property boom-and-bust cycle seen elsewhere.Official data show property prices rose by the most in six years in August. While gains have been most apparent in large cities such as Shenzhen, where home prices are up about 60 percent in the past year, many smaller cities have missed out.“The difference between over investment versus mismatch is the single most important thing to keep in mind when thinking about China’s property sector, as these two views have vastly different implications for investment and government policy,” Hu wrote in a recent research note.Big cities like Shanghai are experiencing net immigration with only limited blocks of land coming on the market. “If Shanghai sells only one parcel of land in a year, the price of the land must be extremely high – this is not a bubble; this is a shortage of supply,” Hu said.China’s property market has become increasingly polarized over the past three years. Skyrocketing surges are mostly seen in major metropolises or regional hubs, while housing at the national level has actually become more affordable, in part due to rising incomes.Better education, healthcare, social welfare and work opportunities are luring migrants from across China to bigger cities, keeping a floor under demand. A down-payment ratio of at least 30 percent and government policy options also mitiga…

Be the first to comment on "China’s Housing Market Isn’t in a Bubble After All"

Leave a comment

Your email address will not be published.