China's once red-hot real estate bubble is about to pop, experts say.
Real estate prices in nine major cities fell 4.9 percent in April from a year earlier, according to Rosealea Yao, an analyst at market-research firm Dragonomics, The Wall Street Journal reports.
Last year, prices in those same cities rose 21.5 percent and 10 percent in 2009.
World Bank economists have said recently that a plunge in real estate values seriously threatens the Chinese and global economies.
Private-sector economists are equally as worried.
China is a "housing-led economy," says UBS economist Jonathan Anderson, who estimates that property construction alone accounted for 13 percent of gross domestic product in 2010, twice the share of the 1990s, according to the Journal.
"If this overheated property market, on all sides of the market, if it does not cool down in 2011, we will continue seeing more hot money to pour into it and more national wealth to pour out of China," says Wang Jianmao, an economist at the China Europe International Business School in Shanghai, according to Forbes.
Negative real interest rates and zero growth of savings deposits have many middle class Chinese investing in property.
The good news is that the Chinese bubble is different from the U.S. bubble in that people are not borrowing outside of their means to buy property.
"There is still very low leverage per capita in China," says David Semple, Director of International Equity at Van Eck Global, Forbes adds.
"In the U.S., home owners were over-leveraged and so when their housing prices declined they had no real source of capital anymore. China is not Dubai on steroids. You don’t buy with no money down there."
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