I disagree with much of what's being said here. Adelaid's basic gist is that the government will temporarily cool the markets but that the underlying factors driving Chinese property prices are unstoppable - continued urbanization and a low supply of housing.
That might be true if property prices were half of what they are today. The current situation is a bubble, for these reasons:
1: There is a concentration of wealth in real estate because there are few other investment channels. Rich people buy many apartments because property has traditionally appreciated - not least because other rich people are hoarding apartments. This, however, will change for two reasons:
First, eventually the government will implement a property tax system. The provincial governments need a permanent cash generator - they can't keep requisitioning farmland and selling it to developers forever - so it is inevitable. When that happens it will cause many landlords to sell their 3rd, 4th, 20th apartments, thereby driving down prices.
And second, as China's financial system continues to develop - and the government loosens its iron control - there will be more opportunities for wealthy Chinese to invest in things like bonds, hedge funds, etc. Property will not be the only investment option, naturally leading to less money sloshing around in the sector.
2: While yes, indeed, urbanization will increase DEMAND for housing, whether it is possible for the average Chinese to buy without incurring crippling burdens is the key. Right now in Shanghai crappy apartments in buildings already crumbling are going for hundreds of thousands of US dollars - enough to buy a nice, new HOUSE in the United States, a country with twenty times the average income. Even in second and third tier cities a 100 square meter apartment costs 25 TIMES the yearly salary - while in America it is only 5. This is not sustainable. Prices need to come down to reflect what the average Chinese actually makes. And considering how generally low quality almost all apartments are here, they SHOULD be lower. Increased urbanization DOES NOT MATTER in the high-end market, and soon even mid - low range apartments will be out of reach of the average white collar worker making 5k< a month.
It is NOT inevitable that real estate prices will keep rising, as Adelaide states. Japan and America are too obvious examples. The trick is jumping ship just when things are about to burst . . . but be careful - - - could be two months from now, could be two years, could be tomorrow . . .
I'm not an expert, just an observer of the drama unfolding here, but if you are drink the kool-aid like Adelaide I've got a condo in Phoenix to sell you.
Andy Xie, arguably the most respected China-economist wrote this article recently:
http://www.ritholtz.com/blog/2010/03/fr ... y-balloon/
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