housing bubbles in china
Housing Bubbles in Metropolises in China
Introduction
The boom of house market has emerged accompanying with the soaring development of Chinese economy over the last two decades. Although the prosperity of real estate sector makes contributions to the growth of national fiscal revenue and Gross Domestic Product, it also raises a serious problem --- housing bubbles, defined as the housing prices deviate too much from its fundamental value (Flood and Hodrick, 1900), especially in metropolitan areas in China such as Shanghai and Beijing (Hou, 2010). From the data collected by National Bureau of Statistics of China (2013), the increasing tendency of real estate prices continues in these cities. A series of impacts on economic and social sustainability have manifested on individuals as well as the nation. This report presents a study of these negative impacts, probable causes and potential solutions pertaining to the housing bubbles in China.
Impacts
Housing bubbles do not contribute to economic sustainability since they fail to reach the standard of guaranteeing both short and long-term economic gain (Western Australian Government, 2003). Specifically, a depression of domestic consumption and an unbalanced economic structure generated by real estate bubbles may dampen the national economic growth in the future. The exorbitant price pushes residents to be highly potential to apply for loans and to become mortgage slaves when purchasing real estate. Naturally, these applications tend to be prudent to spend spare money for other products in the following decades. According to statistics adopted by Deng and Chen (2008), Chinese urban residents’ final consumption rates has decreased from 61.3 % to 55.4 % from 2000 to 2004, while average that of most countries is above 70 %. When it becomes a consuming tendency of large proportions, a nationwide decrease of domestic consumption would appear and begin to form a vicious cycle: The insufficient consumption forces
Introduction
The boom of house market has emerged accompanying with the soaring development of Chinese economy over the last two decades. Although the prosperity of real estate sector makes contributions to the growth of national fiscal revenue and Gross Domestic Product, it also raises a serious problem --- housing bubbles, defined as the housing prices deviate too much from its fundamental value (Flood and Hodrick, 1900), especially in metropolitan areas in China such as Shanghai and Beijing (Hou, 2010). From the data collected by National Bureau of Statistics of China (2013), the increasing tendency of real estate prices continues in these cities. A series of impacts on economic and social sustainability have manifested on individuals as well as the nation. This report presents a study of these negative impacts, probable causes and potential solutions pertaining to the housing bubbles in China.
Impacts
Housing bubbles do not contribute to economic sustainability since they fail to reach the standard of guaranteeing both short and long-term economic gain (Western Australian Government, 2003). Specifically, a depression of domestic consumption and an unbalanced economic structure generated by real estate bubbles may dampen the national economic growth in the future. The exorbitant price pushes residents to be highly potential to apply for loans and to become mortgage slaves when purchasing real estate. Naturally, these applications tend to be prudent to spend spare money for other products in the following decades. According to statistics adopted by Deng and Chen (2008), Chinese urban residents’ final consumption rates has decreased from 61.3 % to 55.4 % from 2000 to 2004, while average that of most countries is above 70 %. When it becomes a consuming tendency of large proportions, a nationwide decrease of domestic consumption would appear and begin to form a vicious cycle: The insufficient consumption forces
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