Question

How big is China’s real estate bubble and why hasn’t it burst yet? ( 300 words )
(Simon X.B. Zhao∗, Hongyu Zhan, Yanpeng Jiang, Wenjun Pan ) thank you.

Answer 1

Real estate bubble is said to be a type of economic bubble which occurs gradually in the market and it follows land boom. China's real estate sector has seen a strong growth in the economy. Since mid 2000's the Chinese real estate has boomed and with the increase in the real estate prices, the investment has also raised up. In 2004, the real estate prices are doubled on an average. As the bank credit is also going less towards the productive investment and it is moving high towards the real estate market, this will result in the increase in the investment. Foreign Direct Investment (FDI) is also entering into Chinese real estate market and it is accounted at 15% in the market. Now, China consumes around 60% of cement produced & 43% of construction equipment. It has resulted the increase in the GDP of the economy around 10% over the past years, and real urban salaries have increased 15% on average every year. Noticeably, people increases their savings in order to invest in the real estate market. The increase in the urbanisation and incomes supports the real estate market.

If the Chinese real estate bubble bursts, it will affect the economy badly. When the bubble bursts, it brings change in the real estate prices. Financial crisis is closely related to country's real estate sector. If financial crisis arises, the country's GDP, economic growth and investment rate affects. The current Chinese real estate market is in a alarming position,as the country is facing a developing real estate bubble. The Chinese government is taking several measures to control the real estate bubble development. The tightening of credit conditions and slower sales in China has controlled the real estate bubble. Otherwise, it may gets bursts and will affect the whole economy. And also the deflation of the property bubble has controlled the real estate market. However, the unstable conditions in the economy may leads to the increase or decrease in the prices of real estate sector. Hence, it should be controlled to avoid risk on the investors and the economy.