Elaine Kurtenbach reports that there are signs that the red-hot Chinese real estate market is cooling off. Real estate prices in China have risen consistently for so long that people have come to believe that prices only go up. Our situation in Canada is much milder, but there are parallels.
On a recent trip to China I happened to discuss housing prices with some PhD students. They talked about how their families were buying as many apartments as they could as investments. When I asked whether they were concerned that Chinese real estate might be in a bubble and that prices could drop drastically, they looked at me like I had two heads.
It was clear that their perception of the safe path to wealth was to save money and pour it all into real estate. There are many Canadians who feel similarly. They buy homes bigger than they need on the theory that they will make money when they sell these homes. But there are no guarantees. It is better to buy the home you need, pay it off, and diversify savings.
Let me stress that I have no idea if real estate in Canada or China is in a bubble or if the near future will bring higher or lower prices. What I do know is that any financial plan that pins its hopes on ever rising real estate prices is on shaky ground.