There is No Property Bubble in China About to Burst (Review)
This is the main finding of a report released by the Economist Intelligence Unit in April, Building Rome in a Day. The Sustainability of China's Housing Boom. The report was kindly forwarded to the China Sourcing Blog for a review.
Despite the claims of China bears like Jim Chanos, who made it clear - as well all know - that he thinks China's property market is on the road to hell, no less), Building Rome in a Day dismisses such claims as overblown. It does say that China's housing market is likely to face a correction over the short term, yet government tightening measures directed at the property market will at worst be shortlived due to strong underlying demand for bigger and better housing—driven primarily by incomes and urban population growth. In his own review of the report, Jack Perkowski over at Managing the Dragon blog poured more cold water on the overly bearish appraisals of China's property market by outside observers like Jim Chanos because they underestimate the ability of China's government to avoid a damaging property bubble.
Yet more than simply refuting the likes of Jim Chanos, Building Rome in a Day is more interesting in terms of the details it provides on the dizzying extent of housing construction in China. Thus it points out that, at current rates of construction, China can actually build Rome not in one day but in two weeks (close enough I'd say), and that it took China roughly 15 years to build the equivalent of Europe's entire housing stock. New residential floor space completed in China in 2010, moreover, reached 1.8 billion sq metres, which is slightly less than the entire housing stock of Spain.
Building Rome in a Day also makes the interesting finding that China is 'overhoused,' i.e. considering the ratio between GDP per capita (PPP) and residential floor space per capita, China's average living space per head (at just over 30 sq metres) is 53% too large. Does this mean that China has built too much, too fast? In assessing what could go wrong in China's property market, Building Rome in a Day does consider this a risk which has the potential of slowing growth in the housing industry and hence in China's economy. Yet again, underlying demand, the report concludes, points to a relatively stable, albeit subdued long-term outlook.
For details on accessing the full report, see the EIU website. Image: flickr / hó
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