Even China’s largest property developer, Vanke, is now warning that there’s a bubble in the market.
Nationwide, "things haven’t risen to a property bubble yet," said Wang Shi, Vanke’s chairman, in an interview with the Wall Street Journal.
But "in individual cities, and in some of the main cities, there is clearly a bubble. There’s no doubt about that … I’m very concerned." Mr. Wang said he fears the trend could "infect second-tier cities, which would be similar to the nature of the Japanese bubble decade" that imploded in the early 1990s.
As the WSJ points out:
The total floor space of housing sold in the first 10 months of this year rose 50% from the 2008 period. House prices overall have risen at a relatively moderate pace — up about 4% in the year through October. But in some cities, the growth has been considerably faster: Prices in Hangzhou, near Shanghai, rose 6.6% in the period, and in Shenzhen, the southern manufacturing boomtown, they soared 13.8%, according to China’s National Development and Reform Commission.
Wang gave no reason in his interview for the bubble – and instead praised the stimulus package which has done so much to inflate the sector.
But there’s trouble clearly up ahead. The supply of office space, residential space and even hotels is outstripping demand. The price of land is rising rapidly too, so property developers are likely to get squeezed.
The government is trying to squeeze the banks to cut down on mortgages, and there are rumours that the lending requirements in Shanghai are about to be raised again, but the genie is out of the bottle.