China: A Real Estate Bubble, or No Trouble?

When real estate property values, such as housing, are increasing at such a rapid rate that price levels become unsustainable (typically as a function of replacement value, affordability, rental equivalency rates, etc.), a real estate bubble occurs. The consequences of a real estate bubble consist of an inevitable plummet in values and general economic decline. The financial crisis that started in 2007 was caused by the global bursting of real estate bubbles, particularly in residential real estate, and predominantly in the U.S. and Europe. During this time, many financial institutions, such as Bear Stearns and Lehman, collapsed. Does China reflect the same symptoms? Yes – but to a significantly lesser degree.