A real estate bubble occurs when prices of real capital assets become so absurdly high that consumers either refuse or cannot afford to purchase, thus sending demand tumbling down. It did not take in the North American real estate in which we participated was done a slowdown in the appreciation or depreciation of property values in line with forecasts by the Fed in late 2005 and early this year, and many economists – including me. Therefore this time I wanted to give an example of a real bubble.
As the official news agency Xinhua reported, there is a growing concern among senior officials of the People’s Republic of China, rising prices in the major cities threaten to create serious economic overheating and serious social. This led to a new wave of repression by the Chinese leadership on real estate speculation. The National Development and Reform Commission (NDRC), the planning bureau of the State in the reports in the northeast of Dalian in the first three months of this year, prices for new buildings to 15 percent a year won before, and prices in the southern boomtown Shenzhen 10 percent over the same period. While in Beijing, said the NDRC, prices rose by 17 percent appear in the euphoria of the 2008 Olympic Games in the Chinese capital.
But before you jump on the first flight to Beijing, read on. Chinese economists say that owning a home is now an impossible dream for many city dwellers who are further behind the house price surge. The core of the problem seems to be the discrepancy between the prices of capital and real wages. Specifically, the average apartment costs in the city 13 times the average annual salary.
Well, that’s what I’m a real estate bubble!
The main reason for the big prize levitation is speculation. Speculation is one of the many forces that act on the capital market at some point. In economic theory, is speculation as “the acquisition of financial assets or capital may be made only to quickly consume the benefits of fluctuations in their prices or goods or goods without actual intent or use them to defined production”. Basically, what many Chinese traders, is flipping houses before they are built. NDRC reported that many developers are even so far as the creation of independent companies that come to control, with the only goal is to buy the apartment developers are now building and selling them at a margin that inflates prices.
The property is an important engine for economic growth and China’s runaway investment in real estate contributed to signs of a broader overheating. The economy grew by 10.2 percent red (annualized) in the first quarter of this year compared to last year, when it grew at a rate of 8 percent per year. The concern about a too rapid growth prompted the government to increase lending rates by 0.27 percentage points last month to borrow to prevent and reduce investment. The authorities fear that overheating could lead to a sudden crash of the economy. Additional measures are in the wings, including strong increases in property taxes to aim it back down, property developers who hoard land and buildings, a practice the company created an artificial shortage and driven up prices
Is even more frightening social unrest, the fears of management, if the economy does not slow down, more manageable level. This is a growing imbalance of wealth endemic in the Chinese population of 1.3 billion people, where 35 percent of the population lives in cities and 75 percent live in rural areas. There is a control of the residence, so if you’re lucky enough to be born in a city – and registered as a town – it’s easier to go to university or to work on all large companies and government agencies in the city. But when it registered as a person in the rural areas there are severe limits, where can they live and work. And this is indeed the greatest issue of human rights in China today. The majority of this population is made of 1.3 billion people, by law, second-class citizens, mostly living in conditions of abject poverty in rural huts; many of them do not even have running water rinse. One can imagine how these people when they look like their urban counterparts to live and feel.
The economic impact that speculation in the way of the wealth of the market is enormous indeed. Market wealth is defined as “the combination of materials, labor, land, services and technologies to capture a profit” (Adam Smith). Replicas of a bubble of this size are usually bursting at the terminal and irreversible market wealth disappears, it disappears completely. And it takes forever to build new, right from scratch. Here in the West is the best example in recent times, the infamous Black Monday – 19 October 1987 – when the Dow broke 22.6 percent in value in one day! It took nine years for Wall Street investors to recover.
But then, how much is too much? Well, consider this: at the upper end of the market, even the smallest apartment in a building next to the Citigroup skyscraper on the banks of Shanghai incredibly expensive. Complete with all-copper doors and Swarovski crystal lights cost about $ 2 million, or $ 1670 per square meter – and no chimney.
Luigi Fractal
Luigi Fractal is a Real Estate Agent in Vancouver, British Columbia. He holds a BA in Economics and maintains a blog called the Chronicle http://wwwrealestatechronicle.blogspot.com real estate, where you have to find the complete collection of his articles on the economics of real estate and finance. Luigi is with the Sutton Group, the largest organization of real estate in Canada is linked, and is in Sutton-Centre Realty in Burnaby, British Columbia.
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