Daily Management Review

China Housing Prices Skyrocket 76% as Analysts see ‘Tulip Fever’ in the Housing Market


China Housing Prices Skyrocket 76% as Analysts see ‘Tulip Fever’ in the Housing Market

According to new research by economic consultancy firm Longview Economics, the famous Dutch "Tulip Fever" bubble of 1637 is being remembered by many while others draw similarity to it with the housing price hikes in major cities in China over the last year.

"I think what's going on in China is troubling ... some of the valuations there are really quite extraordinary. We've double checked these numbers about seven times, because I found them quite hard to believe," Chris Watling, the CEO of Longview Economics, told CNBC Thursday.

Only San Jose in the Silicon Valley is more expensive than Shenzhen, the firm's research has found.

As the country's stock market was nearing its peak in middle of 2015, there was a acceleration in the housing prices and since April 2015 the Chinese city has seen prices rise 76 percent. The company states that albeit less extreme, the situation in Beijing and Shanghai is similar.

"Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a
bubble, Watling added.

"The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system ... so a lot of it has gone into housing," Watling said.

The typical home in Shenzhen costs approximately $800,000, the analysis suggested. Compared to around 16 times in somewhere like London, the house-income ratio in Shenzhen is now running at 70 times, Watling said.

Many families were bankrupt and the Holland’s economy was brought down to its knees by the Tulip fever which gripped the country in the 17th century. During this time speculation over prized and rare tulip bulbs hiked their prices to astronomical levels resulting in very dire consequences.

China has soured in the eyes of many analysts. despite being the biggest economic story of the last 30 years. The vast difficulties Chinese lawmakers are now facing was highlighted by a stock market crash that began in the country last summer.

Lots of liquidity and lots of debt are the characteristics of the Chinese housing market which Watling said was a story built on credit. Though, once established, all bubbles will eventually burst and deflate, he added.

"It's simply a question of when," Watling said in a research note earlier this week. He added that the removal of cheap money would be the likely scenario that would lead to the beginning of the tightening and subsequent prices falls.

The fact that the property market in China was seen as being in a bubble state was first reported by a number of news agencies in 2013. Stating that China's debt-fueled growth is bearing an "eerie resemblance" to the conditions leading up to the 2008 financial crash warnings against the country have been issued on several occasions by billionaire financier George Soros.


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