Canada's Housing Bubble

Nov 10, 2009 Rebecca Hyam abc.net.au

There are concerns the Chinese Government's stimulus spending is fuelling a property boom which could cause a dangerous housing bubble.

Property sales in China have increased by 85 per cent over the last year, and in Shanghai the price of new apartments has surged by almost 30 per cent.

Arthur Kroeber is the head of Dragonomics, which is an independent economics research firm based in Beijing.

He has told Radio National that the Chinese Government's stimulus package, particularly moves to encourage greater lending, have had the side effect of creating inflated property prices and investment.

"Every time you get extra money in the system as you have now, that puts tremendous upward pressure on housing prices," Mr Kroeber said.

"So I think that's going to be a major problem for the Government next year, and they're going to have to come up with a new set of economic policies that balances the need for continued stimulus to boost growth while at the same time trying to keep housing prices under control."

He says that the lack of an effective pension scheme also prompts many Chinese people to purchase property.

"Individuals think of investments in property as their best insurance policy for old age," he said.

"So in addition to the pressure created by literally 10 or 15 million people moving into Chinese cities from the countryside every year and needing to be housed, on top of that you have this pressure from people already in the cities who want to buy their second house because that's essentially their retirement plan."