Comparison with Japanese housing bubble in 1980s

In this part, the Chinese real estate will be compared with Japanese real estate.

Differences:

China's economy is still immature compared to that of Japan during the property bubble. See the GDP growth of China keeps at over 8% level each year, while GDP growth of Japan was just 3-4% in the late 1980s. Another clue for China's immature economy is that the the low urbanization rate 46% in 2009 (from National Development and Reform Commission (NDRC) of China). Due to the high economic growth and the potential urbanization, China can easily overcome any property market slowdown.

The house price - income ratio is almost ten in China, which is really high compared with developed economies it is only four or five. However, this rich-world yardstick could be misleading since "Chinese homebuyers do not have average incomes but come largely from the richest 20-30% of the urban population. Using this group’s average income, the ratio falls to rich-world levels.", stated by Tao Wang, an economist at UBS. In terms of price-income ratio in Japan, it was was 18 in 1990.

In addition, Chinese homes carry much less debt than Japanese properties did in 1980s. Chinese households’total debt accounts for 44% of their disposable income in 2009(from BCA Research),  against 130% in Japan in 1990.

Similarities:

Over investment in China and Japan (1980s) due to bank easy lending and quantitative easing. See from the graph above, a sharp lending growth of 15% after the collapse of Lehman Brother. $1.08 trillion was lent in the first half of 2009. This resulted in a 15% increase in retail sales, a 33.5% jump in fixed asset investment and 53% increase in property sales.( research by The People's Bank of China). Easy lending is no doubt one of the factors increase the bubble.

In terms of lending volume Japan in 1980s,

banks began to in upsurge the lending. Nearly doubled increase during 1985 to the mid 1990s. Quantitative easing created a liquidity surplus, huge amounts of funds flew into commercial real estate and non-manufacturers.  Most of lendings (equivalent to 40%–50% of GDP) was thought to have gone into the property market. This was considered as the main trigger for the Japanese real state collapse.