With housing prices growing rapidly in all parts of China, economists have long been debating whether or not the housing market is forming an ever-increasing price bubble, which is likely to burst one day. However, the development of the real estate sector is backed by several fundamental trends, which make a crash of the market less likely. Most important is the constantly advancing urbanization in combination with equally increasing GDP per capita, which leads to a sustained demand for new housing. As a matter of fact, housing prices on a national level are rising at around the same rate as the GDP per capita. The growth in income has affected all social classes, which makes acquiring housing property possible even for lower income groups.
Most Chinese view housing not merely as a commodity, but as an investment in an ever-appreciating asset and people invest a large part of their savings in real estate. For the government, the real estate market is equally important. Not only is housing a key part of the national economy, local governments also generate 20 to 40 percent of their fiscal revenue from the sale of land rights. Furthermore, a considerable part of all bank loans in China is property related. Out of these reasons, the development of the real estate sector is crucial for economic stability and the government is taking considerable efforts to control and stabilize the market.
In many Chinese cities, however, real estate prices have reached breathtaking levels. In these markets it is not very likely that the appreciation of prices will continue at the rate they did in the past. More likely, prices will rise at a slower pace. In case of economic uncertainty, moderate price corrections might also occur. At the same time, prospective buyers are focusing more on quality, as many of them already possess property and now want to improve their living conditions. For the foreseeable future it appears the secondhand market and property related services will continue to gain momentum in this environment.