Chinese Property Bubble Burst

Topics: Real estate, Real estate pricing, Japanese asset price bubble Pages: 4 (1405 words) Published: August 25, 2013
WHAT HAPPEN IF CHINESE PROPERTY BUBBLE BURST?
A.Introduction
1. Definition
Chinese property bubble was a real estate bubble in residential and commercial real estate in China. 2. Causes
The Great Recession in 2008 still affects the worldwide economy, especially big countries such as US, Europe, China; results in a sharp drop in international trade, rising unemployment and slumping commodity prices. It causes the property bubble; however, the beginning started early in 2005, deflate in late 2011 when housing prices began to fall, cause for China’s declining economic growth in 2012 and had an ability come back in 2013. From 2005 to 2009, the average housing price in China increased triple as a result of both government policies and Chinese cultural attitudes. Contributors included low interest rates and increased bank lending. They were supported by cheap credit and were able to purchase of property while making competing debt investment less appealing. The local government also relied on land sales for income, incentivizing the continued sale and development of land. Chinese citizens were limited in foreign investments; therefore, they increased the domestic investments like property. In addition, in Asian culture especially in China, owning a house is the most important thing in people’s life, so that invisible pressure will encourage people buying house. All of these factors impacted the real estate market as well as pushed the housing prices too high than their real values. Of note, the overall GDP data coming out of China is highly questionable. The Wall Street Journal states that every province in China reports a higher growth rate than the nation. Building ghost towns is just another way to artificially inflate this uncertain GDP figure. 3. Risk of the property bubble

When the housing prices increased, Chinese companies in other industry like chemical, steel, textile, etc. opened their real estate divisions and expected higher returns than in...
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