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Dilemma arises with housing bubble in China

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1 Dilemma arises with housing bubble in China on Mon Jul 19, 2010 3:22 pm

littlekracker


Dilemma arises with housing bubble in China

Jul 18th, 2010 Featured News, Finance

china housing 300x300 Dilemma arises with housing bubble in ChinaThe average prices of houses in China’s big cities such as Shanghai and Beijing have already reached 25,000 Yuan or $5,100 per square meter.

If these prices will be compared to the resale price of HDB flats, the latter’s prices would be 10,000 Yuan cheaper than the houses in the big cities because the average price of HDB flats only costs 15,000 Yuan. The average house prices, on the other hand, are 5,000 Yuan per square meter.

This is what China is experiencing for the last ten years and has been the country’s major concern. This is called housing bubble.

This crisis called housing bubble is caused by a great market imbalance. China’s demand for houses has increased because of factors, such as: increasing demands for urbanized areas, fast economic growth, and stagnant capital.

In concern of the increasing price of houses in the market, the government then formulated policies to mitigate the housing bubble. These policies include restriction of land use for low-density building and independent house construction, restriction of housing loans, and restriction of foreign house purchases. However these government policies failed to help.

As the housing bubble continues to loom in the economy, it also brought out an issue that the government of China is also concerned about, that is, picking a side.

The choice is whether to expand the housing market by acquiring more areas of land and leaving less arable land for food production, or vice versa. The government has no problem in acquiring lands since the due process is in their favor. However, owners of these lands would be experiencing inequality since they are not allowed to sell their land and the government only gives a small sum of money for compensation.

According to Liu Yunhua, Associate Professor at the Department of Economics, Nanyang Technological University, “In dealing with all the complaints related to China’s long-drawn housing bubble, the Chinese government must balance food security considerations, implications of the distorted housing market with economic growth imperatives. Trade-offs must be made, but change can only happen at a gradual pace. Some moderation of housing market pressure can be expected via increased land supply, the removal of incentives for speculation and provision of subsidized housing for low-income citizens. But achieving this goal could take five to ten years.”

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