Despite the global economic downturn, some markets are still showing remarkable growth. The Chinese property market is one of them.
It’s grown at such an incredible rate that the government took steps to control and ensure its sustainability. Local property developers say this trend seems unlikely to stop anytime soon.
China has been instrumental in shaping global trends for a while now. Therefore, it would come as no surprise that the Chinese real estate market is massive and still growing at a rapid pace.
Some believe this could lead to a bubble which will eventually burst, taking the world economy down with it too.
However, many local experts and analysts think a Chinese real estate crash is virtually impossible. This is due to several reasons. But the main one is that in a state-controlled economy, the government would never allow it to happen.
Chinese Property Can’t Afford a Crash
The Communist Party is at the helm when it comes to the Chinese property market. They have control over the supply of new land for construction, financing for development, mortgage policies, tax rates, as well as house purchasing restrictions.
Beijing is able to use these methods like a thermostat to heat or cool the market at their discretion.
Readers might be asking why is the Chinese government so involved in the property market. After all, they tried to move the country from a government controlled economy to a freer model.
The reason is because the Chinese real estate market is just too big of a risk.
China’s real estate market is a huge part of their economy. It comprises 15% of national GDP, 15% of fixed asset investment, and 20% of all bank loans in China, according to the IMF.
Therefore, with such significance, this won’t be something the government will leave to the free market – at least not for now.
Beijing to the Rescue?
The Chinese government has taken actions to keep the market in equilibrium. But recently, prices have been on the rise despite the government’s cooling measures. This has forced local property developers to adapt and keep their businesses healthy.
A few weeks ago, authorities in Shanghai, Shenzhen, Wuhan and Nanjing tightened home purchase policies in order to rein in surging property prices.
An executive of one of China’s top property developers admitted that he did not expect prices to still rise in first-tier cities. Two reasons behind this are the demand for new homes and increased purchasing power.
One Guangdong-based property developer, Evergrande, plans to add more first and second-tier cities to their portfolio.
Developers say they’re excited about the prospects in first and second-tier cities in general. They’re looking to divest their projects in the lower-tier cities in spite of the government’s effort to nurture these housing markets.
In short, the real estate market in China is still on the rise with the government being a major part of the reason.
This unexpected rise in prices has also affected developers. They’re are now focusing on first and second-tier cities, such as Shanghai, Beijing, and Shenzhen, to fully benefit from this.
InvestAsian will continue watching the Chinese economy and property market closely. With that said, we think there’s several reasons you shouldn’t invest in China.
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