China’s housing market “a wild tiger”

bubbles.jpgMore evidence is emerging of the real estate bubble that China’s easy money policy has created over the past year. Wen Jiabao, China’s premier, has described property markets in some cities as now being like a “wild tiger“. And new figures explain his concern, with the government reporting property sales rose an astonishing 80% last year, to a value of $560bn:

• Shanghai is the epicentre of the bubble, with prices 150% above their 2003 level
• The average apartment now costs $200k, although average wages are just $5k
• Luxury apartments cost 20% more than in New York’s Manhattan district
• Outside Shanghai, Tianjin has built a $3bn “floating city” on a reservoir
• It is about to add the world’s largest indoor ski resort

Property bubbles can be fun whilst they last. But after they burst, the hangover can be very painful for chemical companies, due to housing’s importance as a key sector for demand. As we saw in the 2003-7 Boom period, a bubble leads to over-optimistic forecasts of future demand. And the new plants built to meet this perceived demand remain online, to depress prices and margins, long after the original bubble has collapsed.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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