An Analysis Of The Causes And Countermeasures For China's Real Estate Bubble

The real estate is one of the fundamental industries for its degree of impact to all the other industries and thus its decisiveness to people's livelihood. Since 1998, when the"Reform"started the process of making it a free market, the real estate industry of our country has made leap and bound progresses, leaving the proportion of real estate investment in the gross domestic product (GDP) increasing every year. The real estate had become a pillar industry in China's national economy. Thus the healthy and sustainable development would play a vital role in making sure of the smooth functioning of the whole economy.The real estate prices continue to climb for the rapid growth of the real estate market, causing the widespread concern in society. Are the prices reasonable? Are there in fact bubbles and if so to what extent have the bubbles been. All the related topics have been the attention centre of wide discussion both in the industry and in academia. This paper will strive to study whether the bubbles exist, what could be the causes of the bubbles and what measures could be taken to curve them.The paper is divided into five chapters: the first to briefly illustrate the background of this study and the research content; the second chapter to briefly review the stages of the development of China's real estate market and the current status quo; in the third chapter, first to determine whether there exist relevant indicators of bubbles, such as the proportion of real estate investment in GDP, the price/earnings ratio, the commercial vacancy rates and the rental ratio. By examine these four indicators and comparing them with the current situation of China's real estate market, we can get the conclusion that there are already bubbles, and it manifests itself most in the biggest cities such as Beijing, Shanghai and Shenzhen. And finally through making an example of valuing a property within Shanghai's Inner Ring, we see the price has apparently exceeded its intrinsic value. On the face of concluding the existence of bubbles, the fourth chapter analysis the causes lead to the ever soaring house prices in terms of both micro(i.e. demand/supply, market structure, market expectations) and macro(monetary policy, tax policy, land policy and the regulatory system of the real estate market) levels. In view of the contributory factors of the real estate bubbles, Chapter Five put forward the correspondent policy recommendations to curb and ease the current real estate bubbles, arguing that the government should separate the market adjustment and benefits functions, strengthen the financial regulations of the real estate, push through the house tax/fee reform and promote the establishment of housing price alert mechanism.