Monday, 14 March 2011

Are House Prices Rising Too Fast in China?

This is a good question and it is fortunate that a group of respected economists have looked carefully at the question.  My own instinct is to say "yes" they are and that a housing price collapse could have serious implications both economically and more importantly politically.

The authors suggest we do not have to worry just yet.

Ashvin Ahuja
International Monetary Fund (IMF)

Lillian Cheung
Hong Kong Monetary Authority

Gaofeng Han
Hong Kong Monetary Authority; University of California, Santa Cruz - Department of Economics

Nathan Porter
International Monetary Fund (IMF)

Wenlang Zhang
affiliation not provided to SSRN

December 2010

IMF Working Paper No. 10/274

Sharp increase in house prices combined with the extraordinary Chinese lending growth during 2009 has led to concerns of an emerging real estate bubble. We find that, for China as a whole, the current levels of house prices do not seem significantly higher than would be justified by underlying fundamentals. However, there are signs of overvaluation in some cities’ mass-market and luxury segments. Unlike advanced economies before 2007-8, prices have tended to correct frequently in China. Given persistently low real interest rates, lack of alternative investment and mortgage-to-GDP trend, rapid property price growth in China has, and will continue to have, a structural driver. 


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