China property market tightening to continue through 2011

Wang Shi, Chairman of  Vanke (China’a largest property developer) this week stated during the China Investment Summit that the market was tightening due to the Central Government’s tightening campaign and that the tightening had been effective. He also spoke about real estate prices cooling in a market that has been called a ridiculous bubble. Wang believes that the risks of a bubble mean that the tightening will continue into 2011. He also stated that he didn’t think China would get as bad as Dubai and his greatest statement from the Reuters article was “If the bubble bursts, Japan’s past will be China’s present.”

China’s property prices have been rising at an incredible rate over the last 2 years and not just in Shanghai and Beijing, but also in other cities such as Hangzhou, Suzhou, Hong Kong and Hainan Island. Is this merely speculation or demand for housing? I think it is a mixture of both. There is market speculation that all property will rise no matter where it is in China however, there is also demand from first property buyers and those being relocated from farms and inner-city redevelopments.

Owning property is culturally seen as being successful and rich in China with many young people not marrying until the male has purchased property. This is becoming harder and harder in cities such as Shanghai were property continues to rise beyond 20,000CNY per square meter ($USD 3000) with the average in Shanghai announced this week as 21,146CNY per square meter.

I believe that demand and speculation will continue through 2011 in the China property market but will move more to the smaller cities as investors and home buyers see that the big tier-1 cities are just too expensive and look elsewhere for better value. The Central government will continue tightening and will also spur along economy with the ratification of the 12th 5 year plan.