China Real Estate: There Is No
By Dan Schecter, July 4, 2011
Member Since: April 2011
Every time I am anywhere in China driving by rows and rows and rows of
completely empty condominium buildings, I ask the people in the car
with me (usually Chinese lawyers) why they think Chinese real estate
prices keep going up even though there are so many housing units
Their answer is almost always the same. Because so many people are
coming to the cities. I then say something like, "but it seems to me not
many of those people can afford to buy their own housing." I then
usually get back one of the following three things (or a combination):
2 "They will be able to."
3 "The Singaporeans and the Taiwanese also like to buy."
I then usually conclude the conversation by adding something brilliant,
like, "we'll see," which pretty much does sum up my position on this
The highly respected (by both me and by others) Economist Intelligence
Unit recently came out with an excellent report on China real estate,
entitled, "The Sustainability of China's housing boom," that comes down
solidly on the side of the Chinese lawyers. The report posits that urban
migration, coupled with Chinese buying bigger homes, will keep driving
China's real estate upward and prevent any popping.
In contrast to some conventional thinking the Economist Intelligence
Unit (EIU) does not believe there is a major housing bubble in China,
although there could be a short-term mild correction.
A strong underlying demand is growing so quickly that a correction in the
next couple of years will be short-lived. At current rates of construction,
China can build a citythe size of Rome in only two weeks, and as much
housing each year as there is in all of Spain. Between 2011 and 2020,
we expect urban residential floor space per head to increase from 30 sq
metres to 41 sq metres.
What do you think? Will we be hearing a popping sound and, if so, when?
I’ve had that same experience many times myself. The answer comes
from a variety of motivations. You have your real estate lawyers, for
example. These chaps desperately need to talk up the market, or
perhaps are lying to themselves that things will just continue going up
(so they’ll continue making a comfortable living). Given the slowdown in
the market, though, I think a lot of these guys are already finding
themselves staring hard in the mirror every morning as they get ready
for work, psyching themselves up for the battle ahead.
Then you’ve got the political types. They can’t criticize a major part of
the economy under any circumstances. That would risk their credentials
as a patriot and a cheerleader. This is more likely when they’re hosting a
foreigner, of course.
Finally, the true believers. There are many out there. These are the guys
who honestly believe that the demand is there, or will be soon, keeping
those prices going up into the foreseeable future. These are also the
same folks who think that double digit GDP growth is sustainable forever.
I think nearly all of the Chinese lawyers who assure me that China's real
estate market can only go up are actually true believers. I think a large
factor in their nearly immutable faith in China's real estate market is that
they themselves usually own at least two condominiums and they are
just not willing to face the fact that their investments could conceivably
go other than up.
Copyright 2011 North Central China Real Estate Association. All rights reserved. All content, web site design, text, graphics, the selection and arrangement thereof are Copyright 2010-2011 by North Central China Real Estate Association. Any use of this website, including reproduction, modification, distribution or republication in any form, without the prior written consent of North Central China Real Estate Association is strictly prohibited.