English 160 - Unaffordable Home: The Outrageous House Prices in China

...

Hence, Chinese investors and Chinese real estate developers notice this opportunity, and they take great advantages from the housing bubble. Basing on the conversation between Lesley Stahl and Gillem Tulloch (a financial analyst), they are talking about a rare thing that has happened in Zhengzhou (a province in China). Stahl writes, “We found what they called a "ghost city" of new towers with no residents, desolate condos and vacant subdivisions uninhabited for miles, … of empty apartments” (Stahl). It is rare because the buildings are all sold out, but there is no resident lived. In fact, the empty buildings are owned by the middle-class people, who bought the houses as investments (Stahl). Clearly, they invest in property because of the uprising real estates’ prices.

Due to the growth in the real estate market, a large number of Chinese people have chosen to invest their lifetime saving into the real estate market. Most investors’ believe that the Chinese real estate market will never crash, the market’s growth has no end. Yuanzhi Wang, 31-year old Beijing resident has shared his opinion with Dhara Ranasinghe (CNBC’s reporter). Mr. Wang said, “There will still be room for growth in this market, even in the next 10 to 20 years; the whole housing bubble is a fear" (Ranasinghe). Mr. Wang has no concern about the real estate bubble in China, and bought a home under construction last December (Ranasinghe). To some Chinese investors, they seem to have zero concern toward the almost-burst real estate bubble. They (investors) only care about whether their investments (houses) would earn a fortune for them or not.

The growth in the real estate market has brought a lot of side effects to the society. Money has become less valuable because of the rapid growth in the real estate market, which means the consumer goods and services are becoming more expensive. Some people may see this (currency inflation) as a good thing because they are making more money. On the contrary, currency inflation is the worst thing that could happen. Every consumer good or service requires more money to exchange when compares to the past. The inflation is not an issue to the wealthy people, but, however, it is a huge problem to lower-class people. For instance, since the real estate has been out-of-control growing; therefore, poor people do not have any chance to have a home. According to Ahua, he states “These developments have … made housing affordability a prominent social and political issue” (Ahua). He has pointed out the issue, which questions the affordability. What is the point of building houses since seventy percent of people cannot afford a home in China, and then (Ahua)? If the reason of building up houses is for wealthy people to invest, then should people start questioning the society?

While more and more people are investing into the real estate market in China, the Chinese government has done some actions to prevent the bubble pops. Beijing has posed restrictions in the housing market over the past five years. The improvement is obvious, “Average new home prices … fell 0.9 percent in July on month, following a 0.5 percent decline in June” (Ranasinghe). The government’s restrictions might seem like lacking efficiency by now, but the actions will control the overall market eventually.

The real estate bubble in China should see as a major issue to everyone. Even though some people may have earned a fortune from the growth in the market, but it does not imply that the impacts of the real estate bubble would disappear. Ricardo J. Caballero (an economist) states “Bubbles are beneficial because they provide domestic stores of value and thereby reduce capital outflows while increasing investment. But they come at a cost, as they expose the country to bubble-crashes and capital flow reversals” (Caballero). Moreover, the real estate bubble is extremely unstable, there is no perdition on when it is going to burst. Therefore, as a part of the community, every Chinese should stop ignoring the issue and start do something to prevent the market from crashing. As a result, there should be no more “ghost city” and investors should stop manipulating the market. If the real estate market crashes, then the millions of people will lose their jobs; the global economy will be affected once the Chinese economy has broken.

Works Cited and References

Ahuja, Ashvin, Lillian Cheung, Gaofeng Han, Nathan Porter, and Wenlang Zhang. Are House Prices Rising Too Fast in China? Washington, DC: Internat. Monetary Fund, 2010. Print.

Caballero, Ricardo J., and Arvind Krishnamurthy. Bubbles and Capital Flow Volatility: Causes and Risk Management. Cambridge, MA: National Bureau of Economic Research, 2005. Print.

Pilkington, Philip. "Will Real Estate Bubbles Again Sink the Global Economy? | Al Jazeera America." Aljazeera America. Aljazeera America, 24 June 2014. Web. 07 Dec. 2014.

Ranasinghe, Dhara. "China Real Estate: A Bubble Bursting?" CNBC. CNBC, 31 Aug. 2014. Web. 08 Dec. 2014.

Stahl, Lesley. "China's Real Estate Bubble." CBSNews. CBS Interactive, 3 Aug. 2014. Web. 08 Dec. 2014.

"What Is Real Estate Bubble? Definition and Meaning."BusinessDictionary.com. N.p., n.d. Web. 07 Dec. 2014.