Many of us have seen the various Youtube videos; fifteen story hotel buildings in China are being built in six days. These videos reflect the extravagant growth in the Chinese housing market that has taken place over the past few years. Barclay's Capital, a British investment bank, estimates that within the next six years, forty percent of the world's skyscrapers will be built in China. Although this may seem like progress for the Chinese economy, it has led some economists to worry about a housing bubble burst. In fact, many economists see paralells between the growing Chinese housing market, and the housing bubble bursts in the U.S. and Dubai.
The article points out that the Chinese government is trying to respond to the high level of demand, while attempting to dampen it down at the same time. Many policies have been put in place in an attempt to address inflation in the housing market and lessen housing demand. For example, new homeowners are now required to put down a thirty percent down payment before purchasing a house. There is a real concern that if demand isn't addressed, housing prices will continue to rise at an unsustainable rate.
We have seen the mistakes within the U.S. housing market and we are now seeing China learn from those mistakes. If China is not able to offset a housing bubble burst, the consequences will be far reaching, and may rock the global economy into another mini-recession.
1 comment:
As you already mentioned in your summary, I think the key to handling this potential bubble is going to be how the Chinese government and the banks involved handle loans. One of the major contributing factors to the U.S. housing bubble was the fact that almost anybody could get a loan and buy a house; if the Chinese can avoid this issue (and it seems that they are attempting to make changes to address it), then I think they could definitely avoid a bubble as large and detrimental as the one that affected the U.S. It really comes down to the old adage "those who ignore history are doomed to repeat it". If the Chinese can't learn from what the U.S. and other nations have gone through, then they will probably be forced to face a similar bear of a problem somewhere down the road
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