Wednesday, June 1, 2011

Chinese housing market about to burst?


 China’s real estate market has a lot of international analysts in disagreement about its future.  Bubble or not?


American hedge fund Jim Chanos has repeatedly predicted the Chinese market will burst, suggesting that 70 per cent of the mainland’s economy relies on construction and infrastructure.


Swiss analyst Marc Faber is in the same camp, saying the market runs the risk of falling sharply, reported The Standard.


Interestingly, some US investment banks like Bank of America-Merrill Lynch, Citigroup and Goldman Sachs appear to be more bullish in this sector.


However, after the People’s Bank of China raised the reserve requirement ratio for banks, and subsequently the interest rate several times, the mainland’s property market began to cool down.


To some degree, this has mitigated the real estate bubble.   Whether the market is stable after a steep correction remains to be seen.


If buyers are willing to bear the cost of housing at the beginning of the market’s correction, then there won’t be much room for prices to fall.


Both the increase in people’s wages and the market orientation of China’s interest rates will enhance the purchasing power of home buyers, which in turn will limit the correction of real estate prices, wrote The Standard.


China still controls its asset prices, and wants to see a stable economy. What it doesn’t want to see is a sharp rise or a big slump in housing prices.



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