In the past 15 years, house prices in the world's second-biggest economy have rocketed, and the resulting fear of overheating in the market has spurred the government to take increasingly tough action across the state, writes Clifford Coonan of The National.
It's the question that seems to never go away—when will China's property bubble burst?
In recent days, China has stepped up its efforts to cool the property market, implementing measures in key cities amid growing anxiety the country's property bubble will finally pop this year.
Since 1998—when property ownership started to move into private hands—and 2011, property prices across China have rise 160%, government data show.
A sudden property bubble burst could have a disastrous wider impact, spreading to the Chinese banking sector, and concerns linger about the broader significance of exposure to shadow banking—unregulated credit offered by non-bank lenders.
Gillem Tulloch, the founder and managing director of Forensic Asia, said it straight out in an interview with Reuters last month. "I've never come across a government that's managed to deflate a bubble gradually. What will likely happen is that confidence will suddenly go and that, yes, the bubble will pop," he said.
"We do think the bubble will pop in the second half of the year, once they stop injecting ridiculous amounts of credit into the economy," said Tulloch.
The Chinese government has regularly, and steadily, implemented a host of cooling measures. Late last month, Beijing, Shanghai, Chongqing, Shenzhen, and Guangzhou were named among cities that will lead the central government crackdown on the overheated property market, the state news agency Xinhua reported.
The moves follow instructions from the central government that local authorities need to strictly enforce a 20% capital gains tax and higher down payments for second-home buyers, in areas where property prices are rising too quickly.
Under the new measures in Beijing, single residents in the capital will be prohibited from buying second homes, while Shanghai's municipal government said in addition to enforcing the capital gains tax, it would apply greater scrutiny to borrowers who come from other cities, are foreign, or divorced.
The municipality of Chongqing and the cities of Guangzhou and Shenzhen have also said they would ensure all districts were responsible for stable housing prices, and would strictly implement the new rules.
These measures come on the back of other attempts to cool the market in recent months.
One of the last things the former premier Wen Jiabao did before leaving office was to order the central bank to raise down-payment requirements for second mortgages in cities with excessive price gains and tighten home-purchase limits in cities with major price pressures.
"The government obviously recognizes the risks in the property sector," Nomura economists Zhiwei Zhang and Wendy Chen wrote in a research note.
"It has introduced a series of progressively tighter policies to contain property prices over the past several years...The pattern has been for house prices to initially dip after tightening policies are introduced, then to rebound, which suggests that the risks have not been mitigated."
A number of high-profile defaults of wealth management products have prompted fears of a risk to China's financial system and economy from the rapid growth of shadow banking in recent years.
According to estimates by Standard & Poor's, shadow banking accounted for 22.9 trillion yuan ($3.69 trillion) of credit in China at the end of last year, which is equivalent to 34% of the total loans in the banking sector, and represented 44% of China's GDP last year.
"We believe major Chinese banks' capitalization, earnings, and liquidity profiles provide a comfortable buffer to absorb any possible hit from shadow banking and credit risks in the wider Chinese economy," Standard & Poor's credit analyst Ryan Tsang said in a recent report.
"We view China's shadow banking more as a symptom than a cause of some emerging systemic risks to the banking sector and the wider economy," added Tsang.
"Orderly growth in China's shadow banking market, particularly in the form of a deepening and functioning debt capital market, could benefit the banking sector if it leads to efficient capital allocation and thereby diminishes the government's dominant role in financing."
Last month, the China banking regulatory commission put a cap on the amount of wealth management products invested in "non-standard" assets—in other words, those not traded on markets—to 35% of total wealth management products issued by banks, and 4% of banks' total assets.
The banks were also instructed to improve documentation and transparency about wealth management products and underlying assets and projects.
Mark Williams and Qinwei Wang at Capital Economics have welcomed the tightening of rules on wealth management products, but say that there is still a need to address the broader issue of pent-up demand among China's savers, to improve on the low returns on offer from bank deposits.
"This has pushed banks into less-regulated areas where they can offer higher returns and where regulators will always struggle to keep up. Financial sector liberalization brings risks of its own. But, in the long run, risks will be reduced if large flows of investment can be brought back in from the shadows. The best ways to do this would be to liberalize deposit rates and to boost competition between Chinese banks," they said.
The investment bank UBS is not especially worried about a property bubble bursting in China, even though it does say there are clearly some unhealthy elements in the property market, including some bubble aspects.
Rental yields in large cities are very low and have been falling steadily since 2008. Since 1992, more than 129 billion square feet of urban housing have been completed, of which almost 75 billion are so-called "commodity homes." A drive through some cities reveals plenty of vacant properties.
In the absence of a property tax, households are trying to move from bank deposits to property. Local governments hold a monopsony position—a market situation in which there is only one buyer—in the supply of urban land, which pushes up land and property prices.
"The lack of household leverage and the absence of near-term catalysts in changing the underlying fundamental support means we are unlikely to see a collapse of the housing market soon," the analysts wrote.
However, Louis Kuijs, the chief China economist at the Royal Bank of Scotland, told the China Daily he believes a disastrous systemic financial collapse is unlikely. "China's banking system is less leveraged and better and easier funded than the systems in the crisis countries, making it in better shape to absorb shocks such as asset price fluctuations."