China Housing Bubble

Topics: Economy of Australia, Real estate, Australia Pages: 5 (1407 words) Published: August 27, 2013
How could the Chinese housing bubble affect the Australian economy negatively?

The Chinese economy is one of the fastest growing economies in history and they have excelled by throwing tons of resources into modernizing their economy. Real estate is a foundation of China’s phenomenal growth record in the past two decades with property construction alone accounting for 13% of GDP in 2010. The health of the economy is crucial to China’s construction, steel and cement sectors. Chinese growth has a positive effect on the Australia economy whom we are China’s biggest provider in raw materials of iron ore and minerals, so when the Australian economy booms, then Australia cashes in. However, the fundamental concern is that the Chinese economy is facing a housing bubble, which could detrimentally affect their economy as well as ours.

For decades, China’s economy has been rapidly growing with the help of the construction and real estate markets. The government has often directed the cash into massive infrastructure projects or favored industries in order to keep the economy booming. However, China’s economy has hit a brick wall and is slowing down fast.

With more than 20 construction projects beginning each year, developers and investors have been sinking their hard earned generations of cash into the Chinese market to help fund these projects, this saw a huge increase in the demand for these newly developed properties. With the Government implementing a one-property per family in the major cities and allowing for families to buy their own homes, this saw the demand of properties sky rocket with medium-income earners looking to set up a healthy nest egg for their future generations. With the property market on the rapid incline, the Chinese saw this as the perfect opportunity to make a profitable margin, as the property market has been able to provide substantial returns than a bank deposit would. This made unprecedented history and demand for the Chinese real estate continued to grow and developers and investors continued to build more and more infrastructure and housing properties.

The idea behind many of the concrete jungle cities was so that the Chinese government could accommodate the urbanized population, however, in cities like Mongolia the population surrounding these cities are living on less than $2 a day and with the demand in real estate increasing the inflation of property prices, the average-family has no chance of ever purchasing an apartment to live in.

All the developments have been purchased by those who have sufficient savings and are looking at investing, however, they are all uninhabited as the average family cannot afford the rent or to purchase a property since they cost upwards of 50-60,000. The developers have created cities, shopping malls and financial districts, all which have been partially completed and are all uninhabited because they built too much infrastructure too quickly for the non-existent supply to feed non-existent demand. Many projects have not been completed as the developers have supposedly run out of cash and there are huge loans at stake, which could fall through any minute since there is no demand for the actual infrastructure being built.

The biggest concern is that this bubble could ultimately burst any minute and all those medium-income earnings and above who have sunk their nest eggs into multiple dwellings will see this disappear as social unrest develops and prices of those properties fall. Since inflation has inflated the process of demand, the supply is overstated and now the prices of a dwelling are 45 times the average disposable income.

China is Australia’s biggest customer in providing raw materials of iron ore and minerals so when the economy booms, Australia cashes in. This revolution has been brewing for some time and China was determined to ensure that their economy remained on top. With the population rising, the Government saw a need to pump as...
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