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Keynes and Hayek in China’s Property Markets

Real-estate prices in China’s top cities have been spiking recently, generating contradictory predictions of either bursting bubbles or a coming economic turn-around. What's really going on in China’s hot property markets?

HONG KONG – Real-estate prices in China’s top cities are spiking, generating contradictory predictions of either bursting bubbles or a coming economic turn-around. What’s really going on in China’s hot property markets?

China’s National Bureau of Statistics (NBS) revealed last week that ten of the 70 large and medium-size Chinese cities surveyed had recorded annual price increases of more than 20% for newly built commercial housing. In the first-tier cities of Shanghai and Shenzhen, those gains were even higher: above 37%. In the second-tier cities of Xiamen and Hefei, the increases exceeded 40%.

Chris Watling of Longview Economics compares China’s property market today to the Dutch tulip mania that peaked in 1637. He points out that property prices in Shenzhen, in particular, jumped 76% since the start of 2015, bringing a typical home to $800,000, just below the average home price in Silicon Valley. This, he suggests, may be the last hurrah before a market meltdown.

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