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China Real Estate: Another Bubble Market In The Making?

Posted by Staff Reporter on Apr 20, 2016 08:35 AM EDT
China's House Prices more big
Residential buildings rise above Huayingshan Square on March 18, 2011 in Huaying, Sichuan Province, China. (Photo : ChinaFotoPress/Getty Images)

The People's Bank of China's economic growth package had become the reason for rallies recently experienced in the Chinese real estate. With prices, sales, and demand skyrocketing, the high risk of another asset bubble in the mainland's economy had increased. 

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The Chinese economy, at present, is continuously disinvested with capital flight turning into a major issue. While the overall growth pace slowing to 6.7 percent in the first quarter from a  6.9 percent average in 2015, the PBOC's policies that targeted at boosting economic growth through bringing in monetary liquidity have by far produced little effect, according to a feature by the NY Times

Mainland China's property prices gained the needed momentum in March, with Beijing, Shenzhen, and Shanghai real estates rising also due to central bank-provided liquidity influx. The efforts have bolstered demands for non-business fixed assets.

The National Bureau of Statistics reported that out of the 70 monitored cities, estate prices increased in 62 percent compared to February's 40 percent. On similar assets, prices only retreated in 8 cities since March, compared to the period in 2015.

Recently, PBOC is loosening its policies through the reduction of reserve requirement ratios for commercial banks.It also decreased the value of the renminbi, and controlled the interest rates on loans.

The increased credit availability was done to boost business activity. However, China's economy remained in the doldrums, while property demands rose exponentially, according to a feature by the Sputnik News.

China's annual estate sales looked intimidating. In March, its home prices skyrocketed to 71 percent, gathering $134.1 billion. Reportedly, this has suggested that there was property demand brought about by excessive PBOC liquidity.

Meanwhile, mainland China's housing market bubble has become a clearer probability, given that PBOC had lost policies to halt economic slowdown. However, the more recent liquidity will be absorbed by the bigger and stronger market segments, further bringing negative impact to the overall situation.

A major restructure of scale debt is reportedly necessary in order for the estate market expansion to happen.

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