Property dreamland in China? Think thrice!!!

Nowdays, more reports are surfacing that real estate prices will continue to go up for the next 10 years. I cannot help but admire these writers for their power of extrapolation. This optimism is built on the demographic structure of the Chinese population for the next 10 years.

Building castles in the air
Here are reasons why we should ignore all this bullish talk and why the prices are not sustainable.
First, the current price of newly built houses and apartments in most cities is beyond the reach of the vast majority of citizens. Building costs are much lower than selling prices no matter how one calculates - that's not normal. Some economists estimate that the greatest part of the huge profits are swallowed by land authorities and developers.
Second, the real estate market in many regions is prone to bubbles because of intense speculation in the last few years. An economist from the National Development and Reform Commission, said this week the number of houses constructed over the past few years has actually surpassed demand. A large number of houses in many cities are left in the hands of developers or controlled by some speculative investors. One of the tricks developers play to bid-up housing prices is the so-called fictitious transaction - falsely reporting sales that never take place. Tomson Riviera, a luxury apartment block in Shanghai, which made a sensation in 2005 with its astonishing average price - 110,000 yuan (US$14,387) per square meter - will be investigated by the city government, along with other two projects, the Xinhua news agency reported on Wednesday.
Since the beginning of its "sales" in 2005, only three contracts were signed but all of them were canceled. There seem to have been no real transactions. A smokescreen to justify the price? The abnormally high price level of real estate in many cities in recent years cannot be explained by the great number of young people or the tension between supply and demand.
Why has it existed? One notable reason may be the notion that buying real estate is a good investment. Developers, media and some scholars tell people housing prices will soar. If people didn't believe this, there would be panic, the bubble would burst. In order to postpone that day, some people may deliberately be trying to mislead the public by talking about the age structure and the supply gap.