China, almost indisuptably has a property bubble. Reports of shopping centre’s only being 20% tenented are scary enough but it’s the housing market that should have everyone more immediately concerned.
The graphs below, source here, clearly demonstrate the problem the Chinese government have if they tap just a little too hard on the brakes and overshoot. The potential for disaster is already on the cards. Chinese disposable income is dropping quickly, and, coupled with rising house prices and increasing deposit requirements, the blue line which represents house prices, may start to look increasingly unstable.
Chinese house prices v disposable income up to October last year:
Chinese house prices v disposable income up to May this year:
The actions taken by the Chinese authorities are necessary, but overshooting the target is easy when you’re using big, blunt instruments, where the two lines go next is anyone’s guess.
So…time for a duplex in Shanghai? Anyone?