'Real Estate Bubble in China: the Present and the Future\r'

'The concern everywhere whether chinaw atomic number 18 is experiencing a tangible realm undulate has affixd, especially aft(prenominal) Dubai crisis happened. The crook ara of both residential and commercial properties has increased by al nearly 6 multiplication since year of 2000. china has enjoyed a sharp increase in spot set since 2006. Especially, after 2009, receivable to the intumescent input package, majority of the m angiotensin converting enzymenessy went to plait and real kingdom sedulousness. It supercharge pushed up the topographic point bell, leading to a lot families became the â€Å"slave of the plaza” who were struggled to pay the mortgage.\r\nNot only the last price has affected most state‘s lives in china, it could also greatly affect Chinese thrift and however the global economy. Domestically, the prosperity of real state intentness is fuelled by topical anesthetic investment and tardily band loan. According to MSN M oney, there is an increase of 38. 2% from 2010 in seat foodstuff , in general from developers and speculators. The outstrip of loans goes to property mart is point more than than scary, up to $1. 3 trillion. People have comp ard the real domain guggle of chinaware to the United States. The question is bequeath Chinese property cardcastle has the similar set?\r\nFortunately, the difference between China and the United States argon quite striking. The factors lead to the collapse of property market in United States exit unlikely to happen. In China, a country with high saving enjoin, commonwealth apply to cloud property in cash in 4 or 5 years ago. pull down in the heyday of residential mortgages, the loan is non as easy as in the U. S. fine-tune payment beat is such(prenominal) higher(prenominal) than in the U. S. A downslope of 20 to 30 % in prices lead non let the bubble take fire in China. In conclusion, the burst of real body politic bubble is not eas y in China and, if happened, bequeath have limited effect to the human being economy.\r\nIn this paper, I will try to cave in the whole picture of Chinese real farming market from the current situation to how it evolves, and will pass on on the rising as well. This will be achieved with the help of roughly data and the explanations of ratios. Section II: A Real land of the realm Bubble in China? The first question takes to be answered is that is there a real res publica bubble in China? Since giving medication tries to avoid this mass medium word â€Å"bubble”, and data are not reliable. People have to figure them out and thought how large the bubble is. Bubble is g demesned to exist in me actually major cities of China.\r\nFor example, in Beijing, real estate prices rose by 350% to 900 % only in 7 years from 2003 to 2010(Figure 1). Other indicators of real estate bubble have reached an alarming status in China in many major cities, including Beijing, Shanghai , Nanjing , Hangzhou and so on. The even striking fact in China is that you commode hear stories about â€Å"empty cities” genuinely often. China has the second largest mall empty in southeast China, and modern empty metropolis in Ordos. These are only the cases that you know and easy to identify. However, more empty streets or blocks are in the cities, delay for batch to move in.\r\nGhost City Ordos: the famed empty metropolis in China is Ordos, which is situated in the north part of China. Ordos is the second richest city in China, followed by Shanghai, even richer in enclosure s of per capita than Beijing. The city is rich because of abundant vivid resources. iodine â€sixth of China‘s sear reserve, one â€third of it is natural gap reserves. The gross domestic product has increased at 25% per year, much higher than the national level. With much(prenominal) a huge amount of bullion, topical anaesthetic government wants to attract more people to sta y in Ordos. This is how the empty city comes from.\r\nThe brand-new city was designed to accommodate 300, 000 people, with a readiness of holding 1 million people. Currently, you mass only see any people on the street, even though most of the properties have been sold out. Surprisingly, the city is hush up under construction. The local government shut away believes that they can fill in the new city soon. Unfortunately, the stories about empty cities have been repeated on and on in China. This has been interpreted as a sign of over investment and real estate bubble.\r\nIn the case, the apartments have all been sold out, even though nobody moves in. ecause most people believe that property will grow definitely. For investment purpose, most of them prefer to cloud one. This kind of behavior has fall ind to the high vacancy aim in China, High vanity Rate: since official data are not reliable, the concrete number of vacancy rate is not available from official sources. The reas on for this has been that government officials utter that, they dont know what vacancy rate means. Obviously, government is act to avoid knowing the fact. Somehow, people have provided a rough estimate on the vacancy rate.\r\nThey are exploitation how many electric meters that have no readings for 6 months as an indicator of vacancy rate. Overall, we got a number of 65. 4 million apartments. It is estimated that the vacancy rate is as high as 36%. With such a high vacancy rate, people are windering how large the real estate bubble in China will be. James S. Chanos, one of the first foresee the collapse of Enron and earn large profit from hedge fund, gave the answer, it will be Dubai times 1000. A growing number of economists and hedge pecuniary resource managers have been believed that Chinese economy is a capacious bubble.\r\nOthers argue that China is definitely not a bubble, the knowledge is real. There is overheat in some area, hardly infrastructure construction is stil l necessary to a country like China with such a huge population. Still, a lot people live in area without roads. The petition of properties is still more than the supply of apartments, due to the urbanisation and economical growth. The pent up demand from city dwellers for conk out living ensure, in the future, will convert to real development in economy.\r\nEven in 2009, when residential property prices enjoy a high fluctuation, the construction area has increased by 40. 7%, by and large due to the substitution government‘s stimulus financial package. Figure 4 Section ternion , What are the forces that push up the price? In China, it is more than market demand and supply that specify the price . Local government, individual investors, and central banks are also involved, which make the issue more complicated. fresh years’ increase in property price has created an impression that real estate market will keep growing in the future.\r\nUnfortunately, this is als o the sentiment in the U. S. real estate market which, ultimately, results in economic recession. Thus, near everybody bet on the future of real estate market. In this section, I will analyze both the market reasons and affable factors that contribute to present situation in China. In monetary value of market demand, the demand for property comes from two kinds of groups. One is from the new migrants from rural places in China. Another is from local residences who want better living condition. Due to the urbanization process and economic growth in new years, the demand will increase in the extensive term.\r\nThis has been part of the reason why investors bet on the market growth. At the same time, governments and real estate developers have make an effort to supply adequate apartments to meet the increasing demand. According to Macroeconomic normal , it seems that these have been enough to explain the fact. In an emerging country, political issues are unavoidable in any sense. Land sales have pose an ingrained resource of local government’s revenue enhancement which means high property price shares the nitty-gritty of high pour down-use advanced. In China, people dont buy land instead they are renting land for a certain amount of time.\r\nNormally, it is 70 years. In this sense, you are renting the land or buy the right to use the land for 70 years. Because of the conflict of interest, local governments are not enthusiastic in applying the central government’s price control policies. In order to facilitate the transaction, local governments even requires very low upfront. Question concerning this will be further mentioned in the next part. It has shown that in Beijing and Hangzhou, land sales have accounted for more than 30% of tax revenue. Thus , local chest of drawers has less bonus to tackle the problem.\r\nOnly average home buyers absorb the cost of high property price. Individual investors and state-owned companies made things worse as well. Since state-owned companies normally have much solid financial foundations than private companies, they are more likely to win the land sales bid. It was shown in Beijing that 82 % of land auction bridges are won by SOEs. These large trustworthys are owned by central government, so in turn, if SOEs didnt win the auction or real estate market back a big crisis , both the SOEs and central authority will be affected. This has encourage local government to cooperate with SOEs.\r\nFor individuals, they store apartments, waiting for a instant when real estate price goes even higher. Earning debauched gold is all their purpose. High vacancy rate can explain the situation. Section IV, How Real Estate bubble will affect China’s economy? Unlike other industries, real estate industry affects not only the industry itself but also social safety, political stability and financial stability in China. There are mainly two types of risk that will menaceen the deve lopment of China’s economy, namely, loose mortgage insurance for individuals and corporate.\r\nMortgage loans are relatively new to Chinese residence. Most people pay cash to buy property instead of real estate loans. However, it grows almost 50% per year. The proportion of mortgage loans in nominal GDP has increased by 5 % in just one year. When big fluctuation of property price happens, it is likely that majority of property owners’ expediency will be affected from two perspectives. eldest of all, it will mean the shrink of the value of life history saving. As property is the largest investment of most families, the decline of price is also the shrink of their wealth.\r\nSecondly, households will become more conservative in investing in the future. People will spend less money on consumption and put more money into banks instead. On the other hand, individual and corporate mortgage loans will also pose a threat to the banking system. For individuals, mortgage loan s are relatively new. Chinese used to pay cash for their properties. Nowadays, mortgage loans have enjoyed a 50% increase in just one year. When property price declines, the majority of loan owners will have backbreakingy in paying the mortgage. When it comes in a large scale, private banks can go bankrupt.\r\nDue to some negotiation between opposite groups, real estate developers dont compulsion to pay the right amount of bidding price, instead they only need to pay a small portion to doctor the right to use the land. To be specific, if a firm wins a bid which worth 5 cardinal RMB, only one-tenth of the full amount need to be paid initially. What‘s more, firm can get a loan from banks by using the land as a collateral at the amount of 2. 5 billion. It is clear that firms dont take as much risk as we thought and they can use the extra money to invest in biding for more land.\r\nWhenever there is market fluctuation or crisis, these firms and banks will definitely have a d ifficult time. Conclusion: Opinion diverts in interpreting heat up in construction industry. Some believe that China has a real estate bubble and it will burst soon. Others disagree, thinking this is an exaggeration of the problem of overheating investment in real estate industry in some areas. Personally, with the evidence mentioned above, real estate bubble does exist in China. However, the real demand is there as well.\r\nMost of the problems come from over investment in some areas. Resource misallocation leads to the undue increase in property value. More market liberalization and less state-owned companies compete in the industry will help solve the problem. The importance of property even relates to marriage. There is an article in fresh York Times, titled” In China, Money can buy Love”. Owning a property has become the condition for marrying to somebody. If property price jumps dramatically, not only the economy will be affected, but also social well-being.\r\n'