China property prices reaching us bubble standards

China’s property market may be heading into a bubble as the economy’s reliance on real estate reaches a level close to the housing peaks in the U.S. and Japan, according to Citigroup Inc.

Investment in residential property accounted for 6.1 percent of China’s gross domestic product last year, the same level as the record in the U.S. in 2005 that was followed by the subprime crisis, said Shen Minggao, Citigroup’s China research head.

It’s also about 2 percentage points away from Japan’s 1970s housing boom, he said. “China’s property market is entering into a bubble stage,” Shen said in a phone interview. “It’s evident that property prices are no longer sustainable once the residential investments achieve above 8 percent of nominal GDP, and China may not be an exception.”

A 10 percent drop in China’s property investment translates to a 1 percentage point decline in nominal GDP, Shen said. Adding investments indirectly related to the real estate industry, nominal GDP will fall 2 percentage points to 2.5 percentage points, he said.

Source: Bloomberg