You need 30% down payment on your first mortgage and almost 100% upfront payment on second homes in China, you need to be very, very rich to buy multiple apartment in China, so when it comes to getting burned, its the same few very rich who do rather than the majority of middle class that started off with zero-down mortgages. Apartment in China is more comparable to US government bonds than American housing right now.

This is a very interesting observation - If Chinas housing boom is as a result of excess wealth storage, it would be the first on any major scale.

Quite what happens as the Chinese continue to build really remains to be seen (logic would suggest by continuing to build, property values would drop due to market dilution), having said that though, if sufficient demand remains sustained over a long enough period, without the need for mass lending as the west has seen, then inflation may well come under some kind of sensible control.

Banks are just intermediaries between savers and spenders. The absence of a bank does not mean there is no bubble. Bubbles represent misallocation of resources and the money to invest can be borrowed from banks, borrowed from relatives, dodgy money from bribes or not paying taxes or from savings. The dotcom bubble was spectacular and it was all funded from savings. China is misallocating resources on a huge scale and the resulting economic disaster will be equally big.

As much as mortgage fraud and 100% ARMs and other stupidity by the banks pushed up the bubble in the U.S. they were not a requirement of the bubble. Neither Ireland or Spain had these things and they also had a bubble and bust. Too much liquidity is all it takes.

In the end, who is going to buy these investments to set the long-term price and therefore make the hold value? The Chinese are treating apartments like Beanie Babies.

And they aren't taking out mortgages, they are speculating with money from relatives or loan circles at high rates of interest, which puts everyone's finances at risk, not just the wealthy investor class.

This isn't going to end well, anyone can see that. I don't think China will ever build on this scale again....ever. It's massive excess of everything. Of course the worse hit will be commercial and office space, which means many of the towers we’re seeing built today will sit rotting 20 years from now.

A "bubble" implies that there is an imbalance between supply and demand. If new supply is constantly met by real new demand (ie. not artificial demand sustained by high leverage), then how could there be a bubble?

The reason why the China real estate market is not in a bubble NOW is because RMB is a controlled currency. Mr. and Mrs. Lin has limited avenues in which to invest their money, in fact, only three, essentially. 1) bank deposit, which is effectively assured losses due to inflation, 2) the Chinese stock market, which is notoriously volatile and risky, and 3) real estate, which in all of Chinese history has been viewed as solid of an investment as gold. Hence, the reason why unfailingly every quarter over the last decade property prices has essentially only gone up.

Now, it is true it is unhealthy for all those units being purchased are not actually being "used", implying speculation and insufficient "demand" for people living in them. However, keep in mind, Mr. and Mrs. Lin cannot buy stocks in the US, apartments in London, or bonds in Tokyo. Therefore, it's almost like asking, is there a real estate bubble on Mars? Well... of course not, because Martians cannot invest in assets on Earth and can only invest on Mars. However, should the RMB become freely convertible and Mr. and Mrs. Lin can start to invest their savings outside of China (though that might not occur for another 5 to 10 years), then yes, potentially there could be a sustained drop in real estate prices in China.

My wife and I bought an apartment for her inlaws in Shanghai, near Yindoo Lu subway station six years ago. It's in a Japanese-built complex, one that also houses several foreigners (English teachers and such.)

Place is nice, and better occupied than most, but on the first floor of their particular building is an apartment whose owners... are using the facility to warehouse dried goods for their store, and have been doing so for half a decade.

One thing, actually, most apartments don't come w/ flooring + appliances, those you add yourself in a remodeling once construction is complete. And of course, middle class Shanghainese aren't super-happy about not being able to buy a decent place of their own (our Shanghai apartment, bought for $60k U.S. six years ago, is supposedly now worth more than our Montgomery County townhouse--even before the crash that's coming here.)

/You might also want to look at hotel + office overbuilding.

I don’t get this china housing bubble thing. China is the world factory, and will still be even if they raise minium wage (to start exercising what i call their “internal demand” call).

As far as the banks are concerned in China they are all already virtually bankrupt (as US banks) for years, accounting standards are weak if non nonexistent etc… but it works (they are just an extension of the state, which prints money). Infrastructure may be "overdeployed" in some parts of the country yet, given the ultra high % of poor people, and thanks to their 'internal demand' call, China will be, if government manage to run things ok, a massive GDP producer for years to come.

The property doesn't have to be tied to banks to destroy the economy when the bubble deflates. If construction is really 60% of the Chinese economy, as some reports hint, the cessation of new construction during a deflation will annihilate the economy. What happens when 60% of the economy dries up over night? It will be ugly.

The Chinese are famous gamblers and superstitious about all things to do with numbers. I think this will lead to a sort of gambler's panic when this ends. Again, very ugly.