Chinese Government Underestimated Large Jump in Price of Housing

Published on Author quinn

In China’s largest cities, Beijing and Shanghai, the estimated growth of housing prices has been greatly underestimated by the Chinese government.With the Average Selling Price Index, a government-run property index, reporting with growth 200% below accurate levels, there is fear looming about the stability of the Chinese housing market. While there are problems associated with evaluating this growth due to the fact that most properties are relatively new and have not changed hands, making it hard to properly evaluate a property, the threat still exists. With several middle class families claiming that they cannot afford a home during this time of extreme growth, the worry of a bubble similar to the 2008 housing market crisis in the United States is very real to families living in Beijing and Shanghai. In the world’s second largest economy, the potential nosedive this market could face would affect more than just China’s economy.

Frangos, Alex. “Study: China Underestimated House Price Growth in Beijing, Shanghai – China Real Time Report – WSJ.” WSJ Blogs – WSJ. 28 Jan. 2013.

2 Responses to Chinese Government Underestimated Large Jump in Price of Housing

  1. This could be a temporary threat but small hikes in housing market prices can be controlled with an increase in interest rates. Decreasing the allure of purchasing new houses can help settle this. They should aim to eliminate purchases of property with the intent on selling in the near future and persuade buyers to think more in the long run, rather than the short run.

  2. Even for the US accurately gauging movements in house prices is challenging, as “repeat sales” are too infrequent to give assurance of a good statistical sample. At the same time, it’s not clear that house price increases are what matters, instead comparisons of purchase prices to rents or purchase prices to annual income in the upper 10% of the income bracket may be more appropriate. Now in the US most housing is financed at least in part by loans that become a public record, while the tax system means that purchasers want to report the full price to lessen future capital gains taxes. On top of that are property taxes based on an assessed value (albeit an out-of-date approximation!) which gives a record of each and every property (at least in theory) to help judge “comparable values”. In China however most real estate is still purchased with cash, and capital gains taxes aren’t an issue, so even collecting data on transaction prices (as opposed to list prices) is hard.

    So … look for articles that provide other metrics. You may even find the WSJ has such stories.