China Real Estate. There Is No Bubble. : China Law Blog : China ...

Every time I am anywhere in China driving by rows and rows and rows of completely empty condominium buildings, I ask the people in the car with me (usually Chinese lawyers) why they think Chinese real estate prices keep going up even though there are so many housing units already available.

Their answer is almost always the same. Because so many people are coming to the cities. I then say something like, "but it seems to me not many of those people can afford to buy their own housing." I then usually get back one of the following three things (or a combination):

1. Silence.
2. "They will be able to."
3. "The Singaporeans and the Taiwanese also like to buy."

I then usually conclude the conversation by adding something brilliant, like, "we'll see," which pretty much does sum up my position on this matter.

The highly respected (by both me and by others) Economist Intelligence Unit recently came out with an excellent report on China real estate, entitled, "The Sustainability of China's housing boom," [you must sign up to download it] that comes down solidly on the side of the Chinese lawyers. The report posits?that urban migration, coupled with Chinese buying bigger homes, will keep driving China's real estate upward and prevent any popping:

In contrast to some conventional thinking the Economist Intelligence Unit (EIU) does not believe there is a major housing bubble in China, although there could be a short-term mild correction.?

A strong underlying demand is growing so quickly that a correction in the next couple of years will be short-lived.

At current rates of construction, China can build a city the size of Rome in only two weeks, and as much housing each year as there is in all of Spain.

Between 2011 and 2020, we expect urban residential floor space per head to increase from 30 sq metres to 41 sq metres.

What do you think? Will?we be hearing a popping sound and, if so, when?

UPDATE: Stan Abrams of China Hearsay, in a post entitled, "Real Estate Bubble Deniers," says he gets pretty much the same bubble denials when he talks about China's real estate market and he attributes much of that to the following:?

I?ve had that same experience many times myself. The answer comes from a variety of motivations. You have your real estate lawyers, for example. These chaps desperately need to talk up the market, or perhaps are lying to themselves that things will just continue going up (so they?ll continue making a comfortable living). Given the slowdown in the market, though, I think a lot of these guys are already finding themselves staring hard in the mirror every morning as they get ready for work, psyching themselves up for the battle ahead.

Then you?ve got the political types. They can?t criticize a major part of the economy under any circumstances. That would risk their credentials as a patriot and a cheerleader. This is more likely when they?re hosting a foreigner, of course.

Finally, the true believers. There are many out there. These are the guys who honestly believe that the demand is there, or will be soon, keeping those prices going up into the foreseeable future. These are also the same folks who think that double digit GDP growth is sustainable forever.

I think nearly all of the Chinese lawyers who assure me that China's real estate market can only go up are actually true believers. I think a large factor in their nearly immutable faith in China's real estate market is that they themselves usually own at least two condominiums and they are just not willing to face the fact that their investments could conceivably go other than up.

Source: http://www.chinalawblog.com/2011/05/china_real_estate_there_is_no_bubble.html

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