C.H.I.N.A.: 'Cheap House Is Not Allowed'

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C.H.I.N.A.: ‘Cheap House Is Not Allowed’
Will China’s real estate bubble burst?

Since the onset of the global financial crisis in 2007, China has faced some critical problems linked with the excess of liquidity in its internal market, due to the stimulus plan launched by the Government to soften the effects of the crisis. As a result China is now fighting against a high rate of inflation (especially food prices) and a high cost of property. While the inflation issue has been partially solved in the first term of this year, the fear for the real-estate market trend is still alive.
This essay aims to critically analyse the real estate market in China, which is also strictly linked with the health of this country’s economy, by
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Real-estate investment has represented a wide portion of this fixed assets investments. In fact, this industry, as a driving force for national economic growth, received more policy funding than before the financial crisis. It is important to note, however, as Jianping Y. and Chao S. (2011, pg. 231) point out, that the investment-led recovery is the result of government investments (direct or not) more than the ones from enterprise sectors.
As Chanos declared in an interview for International Business Times (2011), China is now in the middle of a huge housing and commercial real estate bubble. Considering what we have previously said, China apparently presents all the classic signs of a bubble.

(1). Jianping Y., Chao S., ‘The impact of the financial crisis on China’s housing market’, 2011, pg.230

Since 2005, average prices in China’s real estate market has been growing rapidly every year. Analysts such as Javers E. and Powell B. (2010) argued over whether this rise was an effect of a speculative real estate bubble, or a real increase in demand. Signal of a bubble could be the big number of empty or uder-performing buildings and the continued construction of property, including an estimated 64 million unoccupied flats (AsiaNews, 9 Aug. 2011). As Xu Shenglan (2009) wrote, there were “high price-to-income ratios for real estate”, such as in Beijing where the ratio is 27 to 1

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