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On the Recent Rise in China's Real Estate Prices

April 2010
Ichiro Muto, Miyuki Matsunaga, Satoko Ueyama, Tomoyuki Fukumoto
International Department

Real estate prices in China have recently risen sharply, especially in urban areas, and the Chinese government has implemented a series of measures to prevent the property market from overheating. In terms of the genuine demand for property and the levels of leverage in the private sector, the current situation in China's real estate market resembles that of Japan in the early 1970s, when property prices surged dramatically due to"the plan for remodeling the Japanese archipelago." Although real estate prices in Japan dropped after the first oil crisis, they soon resumed an upward trend. The upward trend of real estate prices was supported by the strong housing demand accompanying urbanization, and the fact that there was no significant pressure of balance sheet adjustment since the leverage levels of both the household and corporate sectors were quite low. Since China today is characterized by the same two factors, it could be argued that if there should be a downward adjustment in China's property market in the future, it would not be as severe as the bursting of the bubble in Japan in the 1990s. However, there are some factors in China that did not exist in Japan in the early 1970s that could lead to overheating in the property market, such as local governments' strong incentive for real estate development and the influx of speculative money from overseas. It is worth monitoring how these factors and government measures influence China's real estate market.

Notice

Bank of Japan Review is published by the Bank of Japan to explain recent economic and financial topics for a wide range of readers. This report, 2010-E-3, is a translation of the original Japanese version, 2010-J-3 published in March 2010. The views expressed in the Review are those of the authors and do not necessarily represent those of the Bank of Japan

If you have comments and questions as well as requests for hard copies, please contact Ichiro Muto, Director, International Department (E-mail: ichirou.mutou@boj.or.jp).