Feb 4, 2012

Beijing Cannot Deflate China's Real Estate Bubble

According to comments made at a State Council meeting and published by Reuters, Chinese Premier Wen Jiabao
wants to see a "reasonable pull-back" of housing prices.
The government will clearly keep tightening credit to developers and restricting purchases of multiple homes for speculative purposes. The intentions are certainly admirable - everyone agrees that affordable housing is a must for social stability. However once the bubble has inflated, it often can only either keep inflating further or simply burst.

The social pressures of owning a home to be considered eligible for dating and marriage has produced millions of young male "mortgage slaves". They are finding it ever harder to make their monthly payments as interest rates go up. On the other side of the transaction, developers are forced to come up with desperate measures to weather the crisis and survive as a business. As reported by Caixin
Pressures are building on both sides and it looks like moderation will be hard to achieve. A bursting of the bubble is far more likely. China should learn from Japan's experience in 1990.

(For other WhatIf posts click here)
Vanke has also decided to try marketing tiny, 15-square-meter apartments in Beijing and Xi'an. If buyers respond well, the company could start offering small flats nationwide.

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