It’s The Same All Over

As Yogi Berra once said, “It’s déjà vu all over again.” Actually it’s “sì céng jiàn guò”. And not in a good way...

The problem? The real estate market in China has exploded across this nation. In China these days apartments and property, of any kind, are selling so fast that demand has exceeded supply in many places.

Prices are skyrocketing and prospective homeowners are hurriedly buying up anything they can afford – and a lot that they can’t. Does this sound familiar?

The resultant bubble, many economists and government officials fear, looms over the nation’s state-owned industries, banks, developers, and commodities suppliers like a cloud. And the question is not if the bubble will burst, it’s when.

The concern that is exhibiting itself in every economic circle of thought isn’t limited to the ramifications that the popping of such a bubble would have on China’s economy. The effect of such a burst would have worldwide implications.

Over that past couple of decades, economies across the world have been buoyed by China’s robust market. China’s economic growth this quarter has been predicted by some to reach 12%. During the entire year a 9% growth rate is anticipated.

And yet, just as economic recovery appears to be taking hold in other nations, a collapse of the real estate market in China will threaten its demand for goods from other nations across the globe adversely impacting the feeble recovery here and abroad.

The real estate market in China has been the secret to the success there, in many ways. State-run developments and projects have continued to build massive housing projects, due to an insatiable demand which is fueled by rising prices of homes, apartments, and other properties.

Those who can afford it are buying homes to flip, as investments. And, reflecting the disparity of income levels within China, the poor are left without low-income housing consideration.

The rate at which these buildings – apartments and condos – are going up is simply astounding. Their locations often bewilder. Prices for high-end apartments, in Shanghai alone, rose 54% through September. Apartments across major cities will often cost between $300 and $500 per square foot – if you can get them.

It’s difficult to peg or predict where this trend is headed. The data is insufficient to create trends or predict between one quarter and another. And there are many facets to it, one ripple effect causing another.

One economist will predict a massive downturn one quarter only to be embarrassed by a huge upswing and larger gain than ever the next. Market analysts request that economists and prognosticators wait and see, watching the technicals that are still proclaiming China to be a safe bet.

Those of us who are living through our real estate crisis realize the consequences of a real estate bubble. How China’s real estate bubble will affect the world economy is anybody’s guess. Let’s hope that the Chinese do a better job controlling their situation than we did.


Sources:
Dexter Roberts, BusinessWeek
Bill Powell, Bharat Chronicle March 30, 2010
Mary Woo, Minyanville Business Markets, March 29 2010