2014-09-18

China's Double Bubble in Housing

China has two different housing bubbles. In the first-tier cities, prices are too high for the average worker. In the third- and fourth-tier cities, inventory is excessive. According to Shanghai E-House Research Institute, inventory climbed 2.8% in third-tier cities in August, but in first- and second-tier cities, the increases were 2.5% and 0.7%.

The solution to both bubbles is lower prices.

From iFeng: 中国楼市目前存在两类泡沫 房价一定还会下跌

September 17 afternoon, the Financial Research Institute of the State Council Development Research Center researcher WU Qing opinions that China and the United States as the 2008 collapse of the property market will not happen as China Journalists Association and other units held in the first 59, "Reporters Forum" on phenomenon, but the real estate market has been a bubble, Beijing's housing prices will fall. WU Qing believes that the current Chinese real estate market is mainly there are two types of foam, that cities "price bubble", and "the number of bubbles" four-tier cities. "In Beijing, Shanghai and other cities, housing prices high, people's income is difficult to support the current rents and house prices are now." Data also show that by the end of 2012 Beijing price earnings ratio of 16.7, 12.5 Shanghai, Shenzhen is 13, higher than in most European and American cities, New York is only 6.2, Vancouver 9.5.

For the first-tier cities of high prices, WU Qing bluntly, a city like Beijing, real house prices will fall. WU Qing explained that real house prices need to factor in inflation-adjusted dollars, while the Beijing house prices do not fall only two possibilities, "First, the sharp rise in wages, the other is a substantial inflation."

In addition, it appears four-tier cities, "the number of bubbles", WU Qing analysis, lower prices in these cities, but the current excessive deposit, take many years was able to digest the supply and demand imbalance. This view has been corroborated in the data, according to the Shanghai E-House Research Institute data show that third-tier cities compared with a second-tier cities stock MoM highest increase, up 2.8 percent, while a second-tier cities, respectively 2.5% and 0.7%.

"There are between these two types of foam may show the shift in the relationship." Qing Wu pointed out that Beijing's real estate market supply and demand, largely depends on there is not enough demand to support these demands come from a part of the foreign population inflows. The four-tier cities continued population outflows if too large, the local property market bubble will intensify. Then, the "urbanization will be a key factor affecting the future of the real estate market."

Widespread property bubble, which cities suitable for investment in real estate? WU Qing believes that the real estate market is like the stock market, "a city is a market city with a different real estate situation is not the same." However, WU Qing example analysis, Yanjiao Xianghe higher than reason, more perfect in its public facilities, transportation connections make and Beijing closer. "These places of the house might be invested."

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