china property market in massive bubble debate
News Posted On: 01 March 2010
There is currently a great debate over whether or not the China property market is heading for a crash or not.
On the one hand, the bears point to the southern island of Hainan, where prices grew 20% in January alone. Hainan saw similar rises just before a major crash in 1990, one from which it took 10 years to recover.
They point to an 80% rise in the value of residential spaces in Beijing last year, and a 24% annual rise for the country as a whole.
"Dubai times one thousand – or worse", was the verdict of Jim Chanos, the short-selling hedge fund manager who was among the first to predict the demise of Enron and says that the Chinese asset bubble will pop "sooner rather than later".
George Soros has also given warning of "overheating", whilst two weeks ago Marc Faber, who runs an eponymous $300m (£196m) fund in Hong Kong went further, predicting "that the Chinese economy will decelerate very substantially in 2010 and could even crash".
On the other hand are property agents, Chinese fund managers, property buyers and property owners, who say that prices will continue growing for the foreseeable future.
Their argument is based on the massive population growth in China, and the urbanisation phenomenon. The fact that China has a 1 child law also means most families have the support of both sets of grandparents, many of whom have hidden wealth.
Then they say, is the fact that the government is too reliant on the property market to allow it to crash, adding that it has the resources to prevent such an event. There is also the fact that China has not sold mortgage securities, so the government needn't be dragged into bank-bailouts as happened in the US.
Time will tell who is right, for our sake let's hope it is the latter .
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