The Current Situation of the Housing Market Bubble in Chinas First-tier Cities

Abstract

Abstract: With the progression of China's economy and urbanization, the real estate industry experienced rapid growth, accompanied by increasing speculative activities, which led to a continuous rise in housing prices and the formation of a bubble. Therefore, the focus of this study was the current state of China's real estate bubble and potential solutions. Given the issue of excessively high real estate prices, this study specifically examined the price trends and factors contributing to the real estate bubble in four Chinese cities: Beijing, Shanghai, Guangzhou, and Shenzhen. The research methodology was as follows: First, data on the price-to-income ratio was collected to analyze the current state of housing prices in China, revealing that housing prices were still far above their actual value and beyond a reasonable range, thereby indicating the severity of the real estate bubble in China. Second, by analyzing data and reviewing the literature, the factors contributing to China's real estate bubble were identified and categorized into two main groups: policy-related and economic. On the policy side, factors included policy reforms, monetary easing, and reductions in both the benchmark interest rate and the reserve requirement ratio. On the economic side, factors included the growth in per capita disposable income and speculative behavior. Finally, this paper analyzed how a property tax could curb speculative activities by increasing the cost of purchasing properties, thereby reducing demand and speculative behavior. The findings revealed that the real estate bubble in China's first-tier cities remained severe, and that a property tax could help curb speculative activities and slow the pace of bubble expansion.