Liu Li-Gang, ranked as China's number 1 economist has called
it a bubble. So has Wang Shi, the Chairman of the largest residential property
firm, China Vanke. Yet the hopeful bullish seem to think that China's housing
prices can increase without faltering. As multitude of rural dwellers emigrate
to the cities, the largest urbanisation in history has created a conspicuous
demand for housing in the urban centres of the country. To keep pace with the
hordes moving in, there is a colossal increase in housing projects across major
Chinese cities.
In September 2013, housing prices in Beijing jumped by 18
percent compared to the same period in 2012 according to data provided by the
National Bureau of Statistics. In Shanghai, the rate was 14 percent. An overview
of this would give an optimistic picture… and why shouldn't it? At this rate,
the housing prices may go even higher. Despite the promising figures, industry
players are already calling this insatiable growth a bubble.
On the flipside, however, it seems that entire
neighbourhoods and portions of cities has houses and apartment blocks
proliferating but only in vain. The phenomena of "ghost towns" has
now become prevalent in China. Traditionally, ghost towns are former
settlements which are no longer in use now, for example, communities
surrounding Soviet coal mining towns which are now completely abandoned. Mind
boggling as it may be, there are "cities" in China built to accommodate
millions only to find a handful of people living there. The names Ordos,
Tianducheng, and Thames Town in Songjian District come to mind.
This excess of capacity, also known as overinvestment, is
taking the shape of a bubble - albeit a controllable one, labelled by Wang
Jianlin. The Chairman of Dalian Wanda Group announced at the World Economic
Forum in Davos 2013, that the group will not rule out on acquiring hotel
management firms so as to diversify investments out of Mainland China. By 2020,
it hopes to have a $100 billion revenue with 20% of income coming from overseas
markets.
After investing in other countries in the Southeast Asia and
the US, China Vanke also wants a fifth of its revenues from overseas as well.
In similar vision, R&F Properties, Guangzhou’s one of
the largest real estate companies has made plans for its first acquisitions
abroad in Malaysia. Its plans are to build residential as well as commercial properties
there for $1.4 billion. The Chairman commented “R&F has been exploring
opportunities to tap into fast-developing markets overseas to boost its
longer-term profitability.”
Chinese magnates are securing long measures by taking early
measure. The questions remains - when will the bubble burst? Liu Li-Gang claims
that China is facing an increasing risk of a property bubble. “But certainly
within the next ten years, we're going to see another real estate bubble burst,”
the former head of Bank of Boston said at a panel discussion about investment
in China and the US. Few even argue this process has already started.
What is for sure now is that housing prices will keep on
increasing for the time being, as the trend of investing in housing, in China,
is prevalent over other forms of stowing money away safely.
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