There are four main reasons for the soaring real estate price:
- The investing enviroment in China doesn't offer much alternatives. Banks pay little interest, the stock market has been extremely volatile. Many investors got burnt in 2007-2008 when the Shanghai Composite Index (SHA:000001) fell from 6,000 to 1,800 in 52 weeks. Therefore, a large amount of money, which was supposed to be re-invested in business, goes to real estate market.
- The Chinese government's push to keep GDP growth high ended up fueling construction related projects. A surprisingly large proportation of GDP for the last two year were made up by construction projects and the revenue from selling of lands. The land selling price is actual increasing, which build up the cost of houses.
- Having a home (house, apartment unit) is critical to each Chinese family. That's the culture in China. Finding a job, getting married, buying a house, having a baby--that's the logic in almost every Chinese people' mind. So there is a constant, solid demand for the houses and apartment units.
- It is questionable if the so-called 'curbing policy' really address the core of the issue. For wealthy people, they don't even need to borrow money from the bank...
Many believe these days are critical to the Chinese real estate market. Real estate developers are holding their price high and wait for the market reaction. If they can hold on longer, investors may once again buid up their confidence and believe that the price will go up. Then this will be out of government's control.
There may be more direct and strict policies in the future to really deal with the current real estate "heat". Until then, investors will have to bear the brunt of the uncertainty surrounding equities...