Chinese property bubble bigger than sub-prime: HSBC

Property bubble? After three years of cooling, the Chinese property market is heating up once again, and the market’s recent action has attracted plenty of attention across Wall Street.

HSBC is the latest outfit to come out with a report on the sector, warning of the danger brewing under the surface. The bank's analysts use China’s residential housing value-to-GDP ratio. In February 2010 this ratio surpassed the peak level in Hong Kong before the 1997 Asian financial crisis was also above the pre-subprime crisis peak in the US. HSBC estimated the total value of residential property was 3.27 times nominal GDP, higher than the 3.04 times recorded in Hong Kong in 1997. However, before the market got further out of control Chinese policymakers introduced property tightening measures, which worked extremely well. In addition to tightening measures the residential property value to GDP ratio benefited thanks to rapid nominal GDP growth of 18% year-on-year during the first quarter of 2010.

Chinese property bubble bigger than sub-prime

Policymakers have removed these property market tightening measures over the past two years. To counter the sharp fall in the stock market, a slowdown in economic growth and pressure on capital outflows China’s policymakers have allowed the property market to take off once again. New loans to property buyers have surged.

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