Fears of housing bubble due to China's escalating property prices

Residential property prices in 10 of China's largest cities have risen by 23% in the past year, and up to 53% in places like Shenzhen, fuelling concerns of a housing bubble in the country. With markets continuing to rise in 2016, local governments are trying to cool price growth with tighter lending controls and restricting home buying by non-residents. On top of the slowing Chinese economy, a bursting housing bubble could lead to an exodus of investors from stocks and property.

Rapid housing price growth raises concerns about a housing bubble in China’s largest cities. Over the past year, residential real estate prices in 10 Chinese cities have risen by an alarming 23 percent. During the height of the housing bubble in the United States, by comparison, the highest year-on-year growth figure recorded was 20.5 percent. The prices in some cities have ballooned even more; housing prices in the large southern city of Shenzhen rose by a staggering 53 percent over the past year.

Rapid housing price growth raises concerns about a housing bubble in China’s largest cities. Over the past year, residential real estate prices in 10 Chinese cities have risen by an alarming 23 percent. During the height of the housing bubble in the United States, by comparison, the highest year-on-year growth figure recorded was 20.5 percent. The prices in some cities have ballooned even more; housing prices in the large southern city of Shenzhen rose by a staggering 53 percent over the past year.

These steep price increases are visualized on the map below. From December 2010 to May 2016, the period depicted, the enormous increase in housing prices in China’s largely coastal megacities, such as Beijing, Shanghai, Shenzhen, and Guangzhou, is clearly evident, as is more moderate growth in smaller cities. To view changes over the entire time period bring the right tab to the left side near 2011, and drag it back to the right. Yellow circles indicate price increases — the larger the circle, the larger the change. Black circles indicate price decreases:

Since December 2010, the first month where data are available, 10 cities have seen residential real estate prices increase by 20 percent or more, with Wuhan on the low end at 23 percent and Shenzhen taking the lead at 107 percent.

With price rises in markets like Shenzhen and Shanghai continuing into 2016, local governments are attempting to restrain price growth through stricter lending regulations and restricting home buying by nonresidents. Chinese authorities likely aim to reduce the risk of an overinflated housing market, which could eventually spark a precipitous fall in residential real estate prices. In a slowing Chinese economy, a bursting housing bubble, if one were to occur, could cause stock markets to stumble and prompt investors to pull capital out of stocks and housing, leading to another headache. But if last year’s rapid rise and subsequent fall in Chinese stock markets is any indication, there may be more policy missteps — and a bumpy ride — ahead.

Image credit: Spike Nowak. Sales price data of newly constructed residential buildings comes from the Chinese National Bureau of Statistics.