page-loading-spinner
Home Guest Post: The Two Keys to Understanding China’s Housing Bubble
Economy
Uncategorized

Guest Post: The Two Keys to Understanding China’s Housing Bubble

The User's Profile charleshughsmith September 2, 2010
4
placeholder image
by Charles Hugh Smith

This post is one in a series from respected guest commentators while Chris is on vacation with his family & working on his new book. Chris returns next week; enjoy the fresh perspective in the meantime.

The Mainstream Media in the U.S. has presented two basic approaches to understanding China’s real estate bubble:

  1. There is no bubble in Chinese real estate, as demand for housing is so vast that it will soak up all the tens of millions of flats that have been built in the past decade.
  2. It is a bubble, and it’s fueled by the same dynamic as the bubble that expanded and popped in the U.S. and elsewhere: easy credit and speculative lending encouraged by government policy.

Approach Number 1 has little to support it.  Recent on-the-ground surveys found that half of the flats in Beijing and Shanghai are empty (or the occupants prefer living in the dark, night after night), while reports based on utility accounts found that there are roughly 65 million vacant apartments in China—the bulk of which are presumably held for investment.

Approach Number 2 has some merit, but it misses the key drivers in the Chinese housing bubble, and thus it is ultimately misleading.

My wife and I are fortunate to have a network of contacts and friends in China, and we learned that as long ago as 2004, the typical two-income middle class household in China—those in which wage earners make around $5,000 or more a year each—was buying one, two, or even three flats for investment purposes.

The rest is exclusive content for members

Curious about what being a member offers? Sign up now for a risk-free trial and get a sneak peek into the premium content, features, and perks awaiting you on the other side.

Community

Top Comment

Charles,
Thanks for writing a guest piece for Chris.  I gained insights from you for which I am grateful.  I don’t know how the housing bubble...
Anonymous Author by former_user
0
Image | AlertsUSA

AlertsUSA

Learn more
Image | Game Plan Experts

Game Plan Experts

Learn more