China's Property Bubble Reaching its Limits

Posted by - Tuesday, March 5th, 2013

China's growing real estate bubble has been the talk of the global marketplace for a while now. The nation has been building up property faster than any nation, prices have been going up and up and up, and the middle class is investing in the promising market.

But economists have been comparing it to the United States bubble, looking at the ghost towns like Zhengzhou where, though most of the buildings are owned, few people reside.

On Sunday, 60 Minutes aired a segment on the Chinese real estate bubble, examining what already has many concerned.

Leslie Stahl spoke with Hong Kong-based analyst Gillem Tulloch, who told her that the growing market has been estimated by some to make up between 20 and 30 percent of the entire Chinese economy.

And the construction isn't just housing—it's much bigger than that. It's “somewhere between 12 and 24 new cities every single year,” Tulloch says.

In a vacant shopping mall, Stahl notes that there are signs for large U.S. franchises like Starbucks and Pizza Hut. That must mean there's the potential for business, she says.

But alas, it isn't real. As Tulloch says:

"No, these are all fake signs. Just to get potential buyers the impression of what it might look like if they moved in."

But it seems as though the potential buyers won't come. The building spree is the government's efforts to give the economy boost, assuming it will drive demand and bring people to the cities. But so far it hasn't been successful.

And at some point, the rising real estate prices have to hit a ceiling. And it looks like the government is trying to build that ceiling, too.

The Chinese government has been attempting to cap the rising property prices in the nation, trying to pop the bubble on its own. But the implications if that were to happen—particularly since many members of the middle class are invested in property—could be great.

Even Wang Shi, CEO of China's biggest property builder Vanke, told Stahl he thinks real estate prices are just too high. The people who want to move to the cities—people from rural areas, and many of whom were displaced when property developers built over their fields—can't afford the luxury apartments that are springing up.

Wang Shi is confident there is a bubble, and he also knows that a burst will be horrible.

But between the government trying to squeeze air out of the bubble and the pressure as it expands beyond its means, there may be no avoiding it.

See the full 60 Minutes segment here:

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