Housing Price Bubbles in China: An Investigation of Six Cities

Abstract

Since the reform and opening up, China developed rapidly in almost all aspects, especially in economy. China's economy is characterized by a heaven reliance on the real estate sector. However, a contentious concern that the growth of Chinese housing marketing will lead to an enormous housing bubble has garnered significant attention, and people are keen for an objective evaluation of the housing market. This research paper aims investigate further in this field. In this research, we selected some typical cities across China, including 1 st tier super cities, 2 nd tier developed cities, and some still developing smaller cities. In every chosen city, we collected data of four categories, namely the median income level, the average price level of houses, and the average rent level. These data allowed us the so how high the housing price actually is when compared to people's income and to the rental price. Afterwards, we also estimated the inflation rate as well as the housing purchasing price and rental price for the next 10 years. We were able to use the DCF model to examine whether the houses are overvalued or not in the cities we selected. We concluded that bubbles do exist in major cities in China, but the situation is more optimistic in smaller cities.