China’s Bursting Real-Estate Bubble

What’s the Latest Development?

The rise of China’s middle class has had property developers salivating at the prospect of home ownership on such an unprecedented scale. But the country’s monetary policy has left new neighborhoods completely empty. “The People’s Bank of China has raised interest rates four times in the last two years and raised bank deposit requirements 11 times since January 2010, reports Caixin, a Chinese business magazine. This will slow down investment and make it more difficult for the country’s emerging middle class to move…”

What’s the Big Idea?

“Home buys in major cities are slowing down. Construction outside the megatrapolises has infamously produced dozens of ‘ghost’ towns that are actually more like stillborn cities, because they were designed for residents that never materialized.” This dip in real-estate, however, differs from the American experience in that people are not buying houses they cannot afford, so the population is not exposing itself to ruinous debt. It seems housing developers made optimistic predictions but, so far, Chinese citizens aren’t taking the bait.