By Marcus Leach
Fears of a major housing bubble in China are overblown according to latest research from the Economist Intelligence Unit (EIU).
The EIU’s new Access China model which forecasts population and incomes in nearly 300 Chinese cities, points to on-going strength of demand for housing in China over the next decade.
With China’s property market being the single most important global economic indicator, China’s housing boom will present opportunities for investors in sectors such as furniture, cars and building materials. The latest population survey data* showed that 88% of Chinese households lived in homes they owned, one of the highest such rates in the world.
The cumulative value is enormous — using the Chinese fixed asset investment measure, we forecast a total of 75 trillion RMB being spent on real estate investment over the decade to 2020 - $11.5 trillion US dollars at today’s exchange rate, an amount equivalent to almost five times total current UK annual GDP.
Gareth Leather, economist at the Economist Intelligence Unit says: “Despite rapid rise in house prices in China, the property market is not a bubble. While the government is set to tighten measures the country will only see a slight dip in the short term. However, continued strong growth in housing over the next decade to 2020, will also lead directly and indirectly to more than 50% growth in demand for steel and strong demand of energy. This will place increased pressure on global markets for iron ore and oil.”
Between 2011 and 2020, the Economist Intelligence Unit expects China’s urban population to increase by 26.1% or over 160 million people, while urban per head disposable incomes will increase by 2.6-fold to 51,310 RMB (about US$7,500 at current exchange rates). Residential floor space per head in urban areas will increase from 30 sq m (in 2008) to 41 sq m by 2020.
The EIU model pinpoints exactly where and when the housing growth will occur in China. China is entering a phase of rapid structural transformation as growth shifts from a handful of coastal cities to dozens of inland ones. While overall growth in China will tend to moderate over the decade, the breadth of the new wave of inland growth will help to ensure that it will be strong by global standards and relatively stable.