Frenzied developers with access to cheap money are creating a glut of premium office space and luxury apartments, priced at about 80 times the average income of the city's residents. Prospective middle-class homeowners, in panic-buying mode, are snapping up two properties at once, hoping to flip the second one to finance the first. Civic officials are encouraging the building boom.
The sale of vacant lots bolster their municipal coffers.
Banks eager to reap upfront fees are granting mortgages to all comers. Even factory owners are in on the speculation, generating more profit from flipping property than from traditional manufacturing, which increasingly is moving offshore to Vietnam, Malaysia and other nations with lower labour costs.
No, this isn't Toronto in the late 1980s, or Santa Barbara or Tallahassee six years ago at the height of America’s record housing boom, which culminated in a global credit crisis and ensuing recession.
This is Beijing today, where until recently one of the most popular programs on local television was a reality show called The Romance of Housing that spotlighted the struggles of families pursuing elusive affordable shelter.
And where the papers are reporting on suicides and violent protests after developers in cahoots with local officials seize someone's land for a new office building or apartment block.
The disturbing phenomenon extends beyond Beijing, where housing prices are far higher than in Dubai's overbuilt property market before that red-hot Persian Gulf economy imploded last year. In December alone, Chinese housing prices rose almost 8 per cent in 70 major Chinese cities, while housing starts leapt by 34 per cent nationwide.
Jim Chanos, the legendary U.S. short-seller who thrives on post-bubble bargain-hunting, claims the overheated Chinese housing market is "Dubai times 1,000 — or worse."
Chanos has an obvious stake in chaos. Not so Patrick Chovanec, as associate professor at the business school at Beijing's Tsinghua University. Chovanec cites the intoxicating impact of Beijing's $586-billion (U.S.) stimulus package and an additional $1.4 trillion in lending by state-controlled banks to real estate and other industries last year alone.
With easy money in such abundance, it's no wonder developers are on a building jag.
"You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land in Beijing — not even desirable plots of land — to astronomical rates," Chovanec told Bloomberg News last week.
"At the same time, you have 30 per cent-plus vacancy rates and slumping rents in commercial property. So it's just a case of when (lenders] recognize the losses — or don't."
For the moment, there are two Chinese property markets. There's an over-served premium-priced office and luxury apartment sector, and a neglected affordable housing market so underserved for lack of profit margins that Beijing recently pledged on its own to build 15 million units of shelter for low-income people.
Limited though the boom is to the high end of the market, the stupendous sums tied up in it have the potential to impede, if not halt, China's fast-track Industrial Revolution when the boom inevitably ends.
"It's simply a matter of time before the Chinese real estate bubble bursts," insists Yi Xianrong, longtime student of Chinese property trends at the finance department of the Chinese Academy of Social Sciences. "A bubble burst in China would not only deal a fatal blow to our own economy, but would also extinguish the world's hope for recovery."
Indeed, Western economies are counting heavily on China to lead the nascent global recovery. China's projected GDP growth this year of about 9.5 per cent will account for about one-third of global economic growth this year.
China has been providing one of the bright spots in the recent global downturn.
Bankruptcy victim General Motors has lost money in North America and Europe for years, but it profits from booming Chinese sales.
And Paul Otelli, CEO of California-based Intel Corp., the world's leading computer-chip maker, recently said, "Thank God for China. It buoyed our company through the depths" of the recent global downturn.
China has just overtaken Germany as the world's largest export economy, and eclipsed the U.S. as the biggest vehicle market.
Wen Jiaboa, the Chinese premier, has acknowledged that "property values have risen too quickly," and vowed a crackdown on speculators. China's central bank has twice this month raised the amount of capital Chinese banks must hold in reserve to cover losses, reducing funds available for property loans. But government officials are in a quandary over how hard to apply the brakes. A sudden about-face in Beijing's easy-money policy of ultralow interest rates could trigger widespread property devaluations that would hit not only homeowners but also construction, finance, steel, furniture and other sectors tied to the real estate market.
Yet the longer the bubble persists, the more punishing the inevitable implosion, as Western economies learned from the collapse of the U.S. housing market in 2007-08.
So, uncertainty rules.
A soft landing can be engineered if China's recent, modest steps to cool the market send a powerful enough signal to developers and panic buyers — and provide enough time for a rise in average income levels to match exorbitant housing prices.
In the meantime, there are a few signs the mania is exhausting itself. The new "instant city" of skyscrapers and thousands of villas built in the coal city of Ordos in China's Inner Mongolia is largely vacant — a sobering sign to overzealous developers.
"Who would go there?" a downtown resident told Bloomberg Business Week recently of the sprawling metropolis taking shape in the nearby suburban desert. "It's a city of empty buildings."
The Romance of Housing show was yanked from the air in November, ostensibly because state officials were offended by a scene depicting a corrupt state official. But the show more likely got the hook over concerns that it celebrated recklessness with personal finances. And in Beijing, dirt is accumulating around the entrances to the newly built twin-tower head office complex of the Bank of Communications Co.
In a business district with a 35 per cent vacancy rate due to over-exuberant developer activity, the lobby of the BCC landmark is now used as a bicycle parking lot.