Real estate bubble - or not?

When travelling through China, we often see empty buildings. Or streets. Or city parts. Whenever we ask people what is happening they say ‘Don’t worry, all these apartements are already sold. People are renting them out as an investment.’ We heard that story so many times, and we thought it sounded so unconvincing that it made us ask some questions. And apparently we are not the only ones.

The New York Times is one of a lot of sources that is reporting about China’s real estate market and questioning if there is a bubble appearing, or maybe already there. The article describes a up market development at the Shanghai riverfront, and states that the effect of a Chinese real estate bubble on the worldwide economy is huge. Read the article of the NYT here: The New York Times - Breaking News, World News & Multimedia.

But there are more people writing about this subject. Patrick Chovanec, an economist and associate professor at Tsinghua University frequently reports about this subject. He did a very interesting interview with Zhang Xin, the CEO of real estate developer SOHO China, last month. In this interview mrs Zhang states the following:

Basically . . . our strategy is to sell everything we have.  The real estate business should really be looking at rental yield; build a building and then lease it out with the rent giving a decent return.  But, because of where China is with asset bubbles, people want to buy the assets regardless of whether they can be leased out or not.  People just want to hold [property], even if it is empty.

These are quite remarkeble statements, especially for a CEO of a real estate company. More indicators of a possible bubble can be found in this post of Chovanec.