Risk to Global Economy: China's Real Estate Bubble Threatens to Burst - SPIEGEL ONLINE - News - International

I don't know whether this is a big deal or not, but it seems to be getting more and more press.

Analysts have been calling for a correction in Chinese real estate prices for years. However, real estate busts typically don't happen quickly, but rather a slow-moving train that rapidly gains steam.

The chart I have attached here first appeared in the New York Times in 2007, at the peak of the real estate boom in the U.S.

The data on U.S. housing had been compiled by Yale professor Robert Shiller, who at the time was calling for a major correction in house prices (Shiller, of course, had been prescient in 2000 by publishing Irrational Exuberance, which correctly called a stock market top).

It seems fairly obvious in retrospect that some sort of correction was needed, but most (including Fed Chairman Bernanke) did not foresee any major trouble ahead.

When I first started traveling to Japan in the late 1980's, everyone was talking about the high cost of real estate, but the grind lower didn't really begin until several years later. More recently, in this country, house prices began to spike to unsustainable levels in 2004, yet it really wasn't until the latter part of 2007 that we saw any real signs of significant problems.

So it could be that China may be headed for a problem.

Here's an excerpt from the piece (have added the highlights):

China, which long seemed immune to the global crunch, now faces the threat of a homemade real estate crisis. This could spell trouble for many local governments, which in some cases have financed almost a third of their major infrastructure projects, like airports and train stations, by selling agricultural land to real estate sharks.

Chinese municipalities sold 319,000 hectares (788,000 acres) of land in 2009 alone, an increase of 44 percent over the previous year. Local governments have borrowed heavily from banks, in the anticipation that land prices would continue to rise...

In some cities, the number of new residential units has already exceeded the number of new households. In major cities like Beijing and Shanghai, the Chinese pay about 20 times their annual salary to buy a condominium. By comparison, this factor is only about eight in expensive major world cities like Tokyo.

Risk to Global Economy: China's Real Estate Bubble Threatens to Burst - SPIEGEL ONLINE - News - International