Dispatches From China

Bonfire of the vanities: China’s real estate bubble is bursting

It’s time to balance the view about China and look at the clay feet of the world’s new economic giant. Having discussed some things that China is doing well in recent weeks, there are clouds on the horizon.

One of the most prominent is the real estate bubble, which has already reached the hysterical stage that the U.S. property market was living on prior to the economic meltdown.

China’s economic growth does not mean a person who earns 40,000 to 50,000 RMB ($6,000 to $7,500 U.S.) a year can afford a 1 million RMB ($150,000 U.S.) house.

Understand 40,000 to 50,000 RMB is the median family income for a two-earner professional family in Beijing, and your 1 million RMB gets you a starter home, with less than 1,000 square feet in an outlying area where your commute to work could be a couple of hours.

While Beijing is probably the worst example in terms of the disparity between incomes and residential property prices, it is the undeniable trend that is afflicting all Chinese urban areas.

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