As one of the legal practice areas I focus is REAL ESTATE, I am always fond of reading articles about China property market. I just came across the article “Bubble, bubble, China’s in trouble” which believed that China’s is trouble because of its property market that seemed in frenzy for many years.

Well, every clear mind will understand that China is in trouble for that alleged reason. I will not disagree. However, how serious is the trouble? Is it like what some analysts claimed that the bubble will burst within one year? Probably no one knows. Predictions of bubble burst have been said a few times so far, but they were all wrong.

With the introduction of the harsh financing regulation issued by the State Cabinet in April, it has been expected that property frenzy might be cooled off. But so far, property prices in Shanghai have not seen any noticeable decline and there are even news reporting that housing prices are actually increasing from that on. Again, market may down those hearts waiting for a dramatic drop of property prices.

What are the reasons out there?

As far as I can see, there are mainly two reasons underlying the dogged market, both noted in that article mentioned above.

1. The governments. Governments, either central or local, do not really want to see big drop in property market. They have tried to rein in, slow down the market but not brake it to a halt. Governments are kind of hijacked by the market. On one hand, they want to keep the market cool so as to calm people’s calls for affordable houses but they need this market to drive the economy forwards to create more jobs and internal revenues. Governments are walking a tightrope.

In particular, local governments are keen to push property market as they generate “one-third of their annual revenues from the sale of land-use rights for development”. With a meltdown of the property market, it may be a time most local governments will get bankrupt in light of their heavy debts on their shoulders.

Most recently, while market was anxious about a rumor which said governments may revise an old estate tax to make residential properties subject to that tax, a great disincentive for real estate investment. But today, the State Development and Reform Commission spoke that such a revision would not be considered within the next three years, a gesture showing governments’ disinclination to further crack down property boom.

2. There are no better investment channels here. With so huge wealth in people’s hands and so few channels for investment, Chinese affluent people mostly invest heavily in real estate, which has been on the rise all the way till now. Also the financial crisis has also squeezed a lot of money out of industries a large portion of which is believe to enter into property market.

There are simply no better investment channels. As noted in that article, “Current laws -- based on longstanding Chinese economic doctrine that regards capital inflow as good, outflow as bad -- forbid Chinese citizens from making most kinds of overseas investments. Meanwhile, stock markets in China are unstable and immature, and there are few tax incentives for philanthropy.” It is true.

So far, I cannot see any radical reform and change in these two factors any time soon and therefore, I don’t know when the property bubble will pop though I know China is in trouble there. God may know it.