Experts: Property bubble burst not rational
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The predicted collapse of China's real estate industry is becoming a wide-spread belief. Although many experts dismiss it as an exaggeration, they are warning that the industry should be alert of potential risks.
Comparing China's real estate market from 2005 to 2008 with that of Japan's from 1985 to 1991, many people say China's real estate bubble will burst in 2011.
"With the fast expansion of the economy, both countries' currencies appreciated with hot money flowing to the real estate market, boosting real estate property prices. In this aspect, China's current situation is similar to Japan's in the 1980s," said Yang Hongxu of the Shanghai E-House Real Estate Research Institute.
"In spite of this, China and Japan show considerable differences in terms of the phases and backgrounds of economic growth," he said.
After World War II, the Japanese economy was slow to recover. In the 1960s, its real estate sector took off. The fast growth continued into the mid-80s, when the sector demonstrated high-degree marketization.
China, however, started to marketize its real estate sector in 1998. The sector is still in the early phase of marketization. Meanwhile, China's urbanization has not gone very far. Under such circumstances, speculative factors in the real estate market cannot overwhelm the actual demands that will keep the market buoyant in a long run, Yang said.
Moreover, the Chinese currency has appreciated by only 3 percent against the U.S. dollar since 2005, whereas the Japanese yen appreciated up to 86.1 percent within four years after signing the Plaza Accord with the U.S. in 1985.
"Thus the prediction cannot be right, as it's based on unfair comparisons. The Chinese real estate industry, despite facing lots of pressure, is not likely to collapse in the short term," Yang concluded.
Chen Guoqiang, director of Peking University's Real Estate Research Institute, pointed out the deep cause of the collapse of the Japanese real estate market.
"Japan's real estate market collapsed one year after its stock market plunged in 1990. The collapse was closely related to the devastating accumulation of risks and bubbles in the financial market. China, however, presents a totally different picture," Chen said.
Since the launch of the reform and opening up policy in 1978, the Chinese economy has grown healthily. There are not many risks accumulating in its financial system or bubbles in its capital market. The real estate bubbles are a relatively isolated matter.
Zhang Jianxin, president of Haohua Real Estate Co., Ltd., said that this kind of prediction reflects the public's dissatisfaction with soaring housing prices.
"Many people believe that the real estate market's collapse will lead to a decline in housing prices, which will benefit them. This is not true at all. The collapse of the market will not only shrink investors' assets, but also plunge the public into job and income crises," Zhang said.
"The prediction sends a warning message to the real estate market. The market has to pay attention to the potential risks," he added.
Yang agrees. He also views the prediction, albeit unreasonable, as a warning. If China cannot deal with the real estate bubble properly, its real estate market and whole economy will eventually be affected in the future, he said.
