The real estate market in China is not a bubble, since household incomes are increasing in line with home prices, said Andy Rothman, a China macro strategist at CLSA Asia-Pacific Markets.
Mr. Rothman said that home prices in China’s second-tier cities, where most urban Chinese live, are 75 percent lower compared to larger cities like Shanghai and Beijing and prices are increasing at a slower pace.
“With leverage this low and with house prices rising in line with income, these are not bubbles,” said Mr. Rothman.
“There are obviously individual segments of the market which have problems. But in terms of systematic problems, I don’t see it.”
Jim Chanos, a hedge fund manager, noted that the country is on a “treadmill to hell” due to its heavy reliance on real estate development for economic growth.
China’s statistics bureau said that home prices in 70 cities increased for an 18th month in November, after a series of cooling measures, including the suspension of third home loans and limiting the number of home purchases, failed to curb rising property prices.
Meanwhile, figures from Soufun Holdings showed that home prices in Chongqing surged 29 percent in 2010, while Shanghai recorded a 26 percent increase.
Larger cities, where home price increases are extreme, accounted for five percent of the country’s new home sales deals, said Mr. Rothman, citing Shenzhen, Guangzhou, Beijing and Shanghai.
Overall, property prices in China have increased 10 percent on average per annum over the past six years, compared to an average 13 percent increase in household incomes, said Mr. Rothman.
“That’s really a pretty healthy balance and people tend too much to focus on first-tier cities.”