Just want to voice support for the latest real estate bubble post on China Law Blog about folks who talk down the bubble in the face of pretty obvious evidence to the contrary. Seems clear to me as well, for what it’s worth. Just take a look at average incomes and current prices; I don’t care how many folks come to live in the cities in the next few years. No way that they are going to be able to purchase housing at these values.

Dan Harris explains what happens when he talks to local lawyers on the topic:

Every time I am anywhere in China driving by rows and rows and rows of completely empty condominium buildings, I ask the people in the car with me (usually Chinese lawyers) why they think Chinese real estate prices keep going up even though there are so many housing units already available.

Their answer is almost always the same. Because so many people are coming to the cities. I then say something like, “but it seems to me not many of those people can afford to buy their own housing.” I then usually get back one of the following three things (or a combination):

1. Silence.
2. “They will be able to.”
3. “The Singaporeans and the Taiwanese also like to buy.”

I’ve had that same experience many times myself. The answer comes from a variety of motivations. You have your real estate lawyers, for example. These chaps desperately need to talk up the market, or perhaps are lying to themselves that things will just continue going up (so they’ll continue making a comfortable living). Given the slowdown in the market, though, I think a lot of these guys are already finding themselves staring hard in the mirror every morning as they get ready for work, psyching themselves up for the battle ahead.

Then you’ve got the political types. They can’t criticize a major part of the economy under any circumstances. That would risk their credentials as a patriot and a cheerleader. This is more likely when they’re hosting a foreigner, of course.

Finally, the true believers. There are many out there. These are the guys who honestly believe that the demand is there, or will be soon, keeping those prices going up into the foreseeable future. These are also the same folks who think that double digit GDP growth is sustainable forever.

I get the feeling that as the market cools, the number of people in these different categories will be reduced. Moreover, those lawyers that Dan talked to might sing a different tune if he first poured a few beers into them.

I bet that a lot of those guys, after downing a few, might admit that their confidence in the market is bolstered by the fact that a whole lot of government officials (at all levels) own a lot of property. It’s a fairly widespread belief that “interested officials” will simply not allow prices to drop too much. Might not support the vigorous enforcement of a property tax, either — but that’s an issue for another time.