China's real estate bubble? Three reasons it's not.

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3. Risk-averse culture and policies

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    Visitors are seen around apartment models at the spring real estate fair in Beijing April 7, 2011. The four-day fair kicked off here Thursday with over 100 real estate projects located home and abroad. The Chinese have a very high savings rate and are fiscally conservative, so the upward move in real estate prices may continue for some time.
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Fiscally, the Chinese are quite conservative. The average household savings rate is around 37 percent –compared with 0.4 percent in the US in 2007, right before the downturn. It's rare for individuals or companies to be highly leveraged. There is also a certain stigma attached to new married couples that don’t own a house, which also helps to keep housing demand relatively constant. Even in downturns, people will still marry and be drawn to home ownership.

Beijing also uses a number of ways to keep the economy running like a finely tuned machine. The government uses all economic instruments at its disposal to coax markets in the right direction, including direct control of banks and their ability to lend. Last year, China increased the minimum amount for a down payment on residential real estate from 20 to 30 percent. Foreigners in China are only allowed to buy one property and are required to place 50 percent down. Central control allows the government to react swiftly to shifts in the economy in an effort to avoid surprises down the road.

Until a few months ago, there had never been a property tax in China. In hot markets such as Shanghai and Chongqing, governments are proposing a new 1.4 percent property tax to generate revenue while slowing growth to more manageable levels. The establishment of real estate investment trusts in 2010 is another way to help cool off any worries of a bubble. These instruments make it possible for Chinese and foreigners alike to invest in real estate without actually buying property on speculation.

Population alone cannot sustain meaningful growth. One only needs to look at China’s erratic southern neighbor India to see the argument break down. But as long as Beijing’s strong centralized policies continue to usher hundreds of millions of its citizens into the middle class, demand should remain high and the bubble will fail to materialize.

Benjamin Ward, regional design director for global architecture and design firm Gensler, worked in New York, Paris, and San Francisco before moving to Shanghai in 2006.

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