by Caitlin Kenney

A chart of real estate prices in China from the World Bank
China Quarterly Update/World Bank

The World Bank says property price increases in China are modest.

Our conversation with NPR business correspondent Frank Langfitt on yesterday's podcast made me wonder about the possibility of a property bubble in China. A quick scan of headlines from some major newspapers shows I'm not the only one.

The Financial Times has a piece on the "fears" of Zhang Xin, chief executive of Soho China, one of the country's most successful privately owned property developers. Ms Zhang tells the FT she's worried that the demand isn't real and that it's banks that are driving up the prices.

"In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers."

 

Andrew Peaple at the WSJ says answering the question about a property bubble is "like nailing jelly to a wall." Peaple notes that property prices across 70 large and medium sized cities rose 3.9 percent on-year in October — he's even got a great graphic to show it. Still, he says the problem is highly localized and "fundamental demand for improved housing should provide long-term support for Chinese house prices."

Over at the New York Times, they're focused on what Asian lawmakers are doing to deter speculation in the real estate market. The Times reports that the Hong Kong Mortgage Corp., which issues second mortgages, is no longer making loans to investors and has cut its maximum loan size. Meantime, Beijing's bank regulator is now "requiring commercial banks to look at the bank valuation and the transaction price, then to base the mortgage on whichever price is lower."

In their China Quarterly Update, the World bank stated that "serious asset price bubbles are unlikely to be imminent." The report said that while "price rises have not exceeded income growth significantly," "risks of misallocation of credit and bad loans are real and it pays to be proactive." That's a lesson we've certainly learned here in the U.S., and we know China was watching.