Chinese Bubble About to Pop Analysts Speculate
11 July 2011
While the US housing market was collapsing, and the shockwave from this was toppling property markets, economies and even governments around the world, Chinese property prices were growing at a phenomenal rate. In fact, between 2004 and 2009 Chinese property prices tripled.
This is great for all those investors who tripled their money, but the Dubai boom was great for the flippers who tripled their money almost overnight, but not so great for those who put money in just before the bubble burst. And that is where many analysts fear the Chinese property market is at now, on the verge of a bust.
But this is not just conjecture from ever cautious analysts; ratings agency Standard & Poor's recently cut its outlook on Chinese developers from "stable" to "negative" in anticipation of a "sharp correction" for real estate prices. Analysts are forecasting that prices will fall by 10% or more within the next year.
The belief is based on the massive oversupply of expensive units which locals and first time buyers cannot afford. According to the latest data apartment occupancy rates are below 50% in many cities like Hainan, and Shanghai and Beijing have vancancy rates of 50 and 35 percent respectively. In the US just before the crash Michigan had the nation's highest rental vacancy rate of 18.4%.
Prices are also too high; at the peak of the American bubble the average new home price to annual disposable income ratio topped out at slightly over five. The current corresponding metric for Shanghai is 57.