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The last three years has inspired debate about whether China is going through a real estate bubble.  One of Chinesecrash.coms regular contributors, Vernon Martin (The International Appraiser) explains below his latest findings in China.

Prior to my first visit, I had read beforehand of 64 million vacant Chinese apartments and 50% office vacancy rates in Beijing and Shanghai. When I arrived in China, I did not see this, except for some vacant luxury retail malls in second-tier locations. Perhaps some of these vacancy estimates were inaccurate or even hyped to make China look foolish.


 
 

China's most expensive property market
Flat prices in Shanghai reflect the fact that turnover in China's most expensive property market has fallen sharply since the start of the year, particularly in the luxury segment reports the WSJ.

Sales down
Sales of newly built homes in China's commercial capital in the first seven months of this year fell 5.8% to 8.58 million square meters in terms of floor space from the year-earlier period, while prices rose 2.6% over the same period, according to official data.

Confidence in the official figures is low
However, despite a government push this year for more-accurate home-price data from China's National Bureau of Statistics, international markets—and most Chinese consumers—remain deeply dubious of the official monthly figures. Confidence in the official figures is so low that the markets pay more attention to numbers from a private data provider, the China Real Estate Index System.

Figures dont match reality
According to data from the China Real Estate Index System, prices of new apartments in Shanghai have risen by more than 150% in the past five years. That outpaces a 107% increase in wages over the same period—moving home ownership further out of reach for average earners. But the official data tell a different story. According to China's NBS, prices for new apartments in Shanghai have climbed 20% over the past five years—well below the increase in wages.

Investors pull out
Transactions are mainly from first-time buyers or upgraders purchasing more modest homes. Rich businessmen from nearby Zhejiang province, famed for driving up Shanghai's property market in the boom years, have largely pulled out.

Cracks started appearing
Cracks started appearing in Shanghai's property market after the government in October limited households to buying one additional home, on top of existing nationwide curbs on bank lending. Out-of-towners need to prove that they have paid social security taxes before they can purchase a home in the city, and if they are already homeowners, they aren't permitted to purchase additional homes.

Shanghai sales crash has started

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Many investors are sitting tight, waiting for government restrictions to ease. "I regret not selling my apartment in Xintiandi earlier, when prices were much higher," said one property investor from Wenzhou, a prosperous city in Zhejiang famous for its real-estate speculators, who gave his name only as Mr. Fang. Apart from his apartment in Xintiandi, one of Shanghai's ritziest neighborhoods, Mr. Fang says he owns at least 10 other properties in the city.

Mr. Fang says he plans to rent out his Xintiandi home, unless an attractive sales deal comes along. "My investment strategy is to anticipate policy," he says, forecasting that property regulators will loosen after a leadership shuffle in Beijing next year.

Property analysts generally expect home prices to fall 5%-10% this year from the previous year in major cities, but say the market will likely avoid a full-scale crash due to the high household savings rate, and a belief that government will intervene to prevent disaster, either by easing restrictions or introducing stimulus measures. Real-estate investment is a crucial component of Chinese economic growth, equivalent to 12% of China's GDP.

A slump in property transactions in Shanghai has taken a toll on real-estate agencies and brokers.

Real estate agency Midland Realty, a unit of Hong Kong-based Midland Holdings Ltd., closed all eight of its brokerage branches in Shanghai in May, leaving only one office open for future development.