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China Real Estate ETF: Little Evidence of Bubble

A number of statistical bulletins released in recent weeks have served as an excellent illustration of the ever-widening gap between the world's emerging and developed economies. While the U.S. and Europe struggle to stay afloat and eke out positive gross domestic product growth, the concern in China is very different.

Beijing has been concerned about an overheating economy, seeking to reel in stimulus policies introduced during the depths of the recent recession. The latest round of data indicates that, for the most part, these policies have been successful in accomplishing their stated objectives. But one troublesome area continues to cause anxiety among investors around the globe -- Chinese real estate prices have become a runaway freight train, surging at rates that seem unsustainable.

China's National Bureau of Statistics said this week that average urban property prices climbed 12.8% in April from a year earlier, accelerating from March's impressive 11.7% pace. Consumer price inflation also picked up, rising to 2.8% from 2.4% on a year-over-year basis, although this rate remains below the government's stated 3% target. April property sales were down slightly from March levels, but still came in about 27% higher than the previous year, according to the new statistics.

Perhaps the most telling indication of the status of China's property markets will come next month, since April figures didn't fully reflect policy changes made during the month. In mid-April, the Chinese government raised the down payment for buyers buying a second home to 50% from 40% and said that first-time homebuyers must pay no less than 30% of the property price if the area is above 90 square meters.

The government also said it would increase land supply available for new residential properties in a bid to slow rises in real estate values and encourage more sustainable pricing trends; the Ministry of Land and Resources will more than double the land supply available for new homes.

As the uncertainty surrounding Greece's public finances has shown, chaos in one corner of the world quickly ripples throughout global equity markets. So investors everywhere are keeping a close eye on the situation playing out in China's real estate market.
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