China’s property market is facing the risk of a ‘bubble’ believes Wang Shi, chairman of China Vanke Co., Ltd. (SHE:200002) (SHE:200002), which is the nation’s biggest developer, says a report from Bloomberg. The same concern was raised by the developer three months ago.

Property Bubble

In a conference on Thursday, Wang said that the bubble must be taken seriously and said that, “If the bubble lasted, it will be dangerous.”

Housing Bubble Could Be a Disaster for China

In March, Wang said that the housing bubble could be a “disaster” for China’s property market, and debt owned by developers is a “serious problem.”

He said there is no chance the bubble will burst immediately however, the reason being the diversity of the Chinese housing market.

“You can’t generalize for the Chinese market,” he said. “Then of course, if the bubbles are not controlled, the result will be catastrophic.”

Wang also mentioned “ghost towns”, where homes have been built but are unoccupied. On the other hand, Wang said there are about 60 percent other housing projects in different cities, where the occupancy fills on the day they are up for sale.

Chinese Government Controls Failing

Since March, the government has been trying to put a brake on increasing home prices, but without much success. Steps taken by the government to cool the market include raising down payment and mortgage requirements, imposing a property tax for the first time in some regions and restrictions in about 40 cities.

In measures announced in March, the government imposed higher down payments and stricter enforcement of taxes. Also, in cities that are experiencing “excessively fast” price gains, the government has called for higher interest rates for second-home mortgages.

Prices Still Rising

In May, the prices of new homes were up 6.9 percent.

Last month, in 10 of the biggest Chinese cities, the average price was up 9.7 percent from last year, to 17,202 yuan ($2,805) per square meter. From April, it was up 1.1 percent.

Chanos Also Voiced Same Concern

The same concern has also been voiced by Jim Chanos of Kynikos Capital Management, one of the world’s foremost experts on Chinese economy and one of the world’s most prominent short sellers. According to Chanos, the Chinese ‘shadow’ banking system is made up of government financing vehicles, trust products, and wealth management products. This system is the main culprit behind the highly leveraged property bubble and at the same time is fueling corruption by hiding money in property. Jim Chanos believed that the property market is incredibly over-valued as fewer numbers of people are expected to join the urbanization wav, than what is estimated by the authorities.