Chinese Real Estate Price Bubble-2016 Assignment Answer



There did exist a real estate price bubble in china. This was due to the reason that the government of china applied open door policy through which the exports from the country were made easier. This way the support of the government resulted in increasing huge exports to different countries of the world. Therefore the increase in trade ties and quantity of exchange of goods resulted in increase in earnings of the people. This brought in extra disposable income in the market causing the inflationary effects to show their reaction. The real estate price bubble has now started posing risk to the boarder economy. The discussion and explanation on this issue is done as follows.


A.    Real estate price bubble in China:

Yes there existed a real estate market bubble in China from year 2005 to year 2009 when the prices of the real estate tripled. This was due to the government policies and other cultural attitudes that were observed during this period. Also the heavy increase in earnings of the people due to increased market share of international trade. Thus the prices of real estate increased by manifolds with the coming of more money in the market, causing the inflationary effects to show up. However after the economic recession observed at the global level, the recession kind of process was observed in Chinese real estate market as well. The fall in quantity of exports and earnings from international trade affected the money movement in the market. Later the devaluation in the past few years added to the issues in the earning capability of the people. The result was that the real estate price bubble deflated. People in the country found themselves incapable of paying installment and making purchase of real estates including flats, land and other related due to decline in disposable income. The result was that the fall in the prices of real estate was observed which led to the deflation of the Chinese price bubble for real estate.


B.    Real estate posing threat to broader economy:

The real estate market poses a risk to broader economy. This is so because the decline in the prices of real estate will result in blocking of the money invested by huge investors. The final outcome will be that the investors will either have to wait for their earnings to come back after lag of time or they will have to sell at lower prices. In both case a huge loss to the economy would be observed. Also till the real estates are sold or repurchased the money movement will also get blocked. That is the money invested in the real estate is actually the money taken out from the market. This brings contraction in normal business and the economy circle gets affected. Also till the sale or resale of the real estate occurs the money remains block and affects the economy as a whole.


C.     Final outcome:

In the recent year a fresh surge of prices in Shenzhen and other big cities is observed in China. This may be another hint for the coming back of the Chinese real estate booming. The expectations are therefore high for the investor’s to take out money from the long period invested real estate. This would bring back the long awaited money in the market and the improvement in the economic conditions can be expected.



The trend of increase in prices of real estate was observed from year 2005 – 2009 which resulted in attracting huge investment from people. This investment faced a set back and locks period due to fall in the real estate prices. Further deflation of the Chinese currency Yuan and the increase in impact of global slowdown on international business has affected the earnings of the people and deflated the associated disposable income with them. The result is that the investors are either has to wait for long period for selling the real estate or they will have to sell at lower prices and facing loss. This way the investment has faced as serious threat in the country due to real estate which has blocked the earnings of the people and made the whole economy suffer due to lack of money movement in the market.