Why is it happens? (insider reasons)

This blog will focus on the insider reasons of housing bubbles in China. In simple, what happens in the real estate market to drive the housing bubble problem? Personally, I believe there are because of two main reasons.

1 The virtualization of the real estate market is directly driving the bubble in housing market.

Firstly, this is because of the undeveloped of the Chinese capital market which has made the financial structure unreasonable. Specifically, there are three main funding sources for Chinese real estate companies, which are loans (21.28%), company self-funding (29.85%), and other funding (45.52%). Overall, the main funding seems come from other funding (Data and following data are come from Chinese real estate funding sources Analysis Report which is researched by China Banking Regulatory Commission). However, the other funding in real estate in China is mainly from personal housing mortgage loans (70% to 80%). Therefore, actually over 50% funding is directly or indirectly from commercial banks. Other data may shows more clear view, the real estate development loan balances increased 11 times from 1998 (202.9 billion) to 2009 (2,527.8 billion). The personal housing loans balances rose more than 100 times (from 42.6 billion to 4,760 billion). Furthermore, this is also because of investment function of real estate has been highlighted in those years. The research from sina shows that almost 36.2% people are buy houses for investment which is close with the percentage of people who buy houses for living (44.3%). (Results from Shanghai Securities News)

2 the rigid demand of real estate is the strong support of housing price.

This idea is main support by the urbanization proportion which I have showed in the previous blog (Yesterday oncemore?). Moreover, the increase of per capita GDP also makes people to improve the residential conditions. The per capita GDP increased from 343.4 RMB to 22,698 RMB from 1978 to 2008, which will obviously raise the demand of houses (Peihui Wang, 2011 2vol Economic Theory and Business Management).