Property analysts are wary of a possible property bubble in China, especially after property prices in Shenzhen rose 60 per cent in a year. Despite the government’s attempts at curbing the rapid price rise, consumer fervency has spread from first and second tier cities to third and lesser-known cities and townships. The speed and extent at which China’s real estate sector is growing has economists concerned about an impending bubble and possible market crash. Some analysts have pegged 2018 as the year when things might take the turn for worse.
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The fact that China’s banking sector is closely tied to the real estate industry, any shift in the dynamics may rattle the country’s economy. Akin to the property bubble in the United States in 2008, the fact that loans have increased to take up 71 per cent of new lending, up from 24 per cent within 8 months, indicates an increase that could be based on many gaps in the system.
Property prices are climbing so quickly that concerns for a sharp and drastic fall are well-founded. The unsubstantiated value of homes may cause an eventual collapse of the banking system as it becomes riskier for banks to loan such large amounts of money without a certain way of recouping the losses should the market fall. Having assets at hand which have no value or are not in demand will not bode well for individual property owners, funds nor banks.