ON desolate salt flats on the far outskirts of China’s sixth-largest city, dozens of half-built skyscrapers stand as a monument to the excess and optimism of the real estate market.

As physical manifestations of a bubble go, few examples can beat this effort to replicate Wall Street in a wasteland 40km outside Tianjin and 150km from the capital.

Yujiapu Financial District was modelled on Manhattan’s skyline, complete with an ersatz Rockefeller Center and twin office towers that look uncannily familiar.

Officials boast that when Yujiapu is finished, in 2019, it will be a third larger than the City of London and more than three times the size of New York’s financial district, at least in terms of surface area.

But after years of soaring prices and frantic construction across the country, China’s real estate bubble is showing signs of strain and this project’s fate is in question.

The property market is barely 15 years old and nobody has experienced a real crash because before the late 1990s, most urban residents in post-Communist China were still provided housing by their ‘work unit’

The property market is barely 15 years old and nobody has experienced a real crash because, before the late 1990s, most urban residents in post-Communist China were still provided housing by their ‘work unit’.

Banks started issuing home loans in 1997 and as recently as 1994 a central bank official charged with translating an American financial document had to look to Taiwan for a translation. No dictionary in Beijing included a word for ‘mortgage’.

Even before the global financial crisis of 2008 many were warning of a property bubble here, prompting the government to introduce purchasing and down payment restrictions to slow price growth.

But when the crisis hit and the economy went into freefall, Beijing decided to refill the bubble with a tidal wave of credit.

The result was an immediate rebound as total debt in the economy rose from about 140pc of GDP at the end of 2008 to more than 250pc at the end of June.

To understand the scale of the resulting building boom, consider this statistic: in just two years — 2011 and 2012 — China produced more cement than the US did in the whole of the 20th century.

In the past decade much of the construction frenzy has been driven by real demand, from people wanting to urbanise or upgrade their homes or speculators who have almost no other options to invest their new-found wealth.

The stock market has been in the doldrums since a massive bubble burst in 2007; returns on bank deposits are negligible or negative; and capital controls mean citizens cannot easily diversify their portfolios abroad.

The government itself has an enormous incentive to keep pumping up the bubble. All land is technically owned by the state and land sales made up 60pc of local government’s budgetary revenues last year, according to estimates from JPMorgan.

Land prices have risen fivefold since 2008, triggering corresponding asset price increases. However, even as prices soared and supply mushroomed, demand for housing and office space pretty much kept up — until this year.

Prices in 55 of the 70 largest cities fell in June from a month earlier, compared with just 35 cities in May, accelerating a downward trend that began at the start of the year and marking the sharpest monthly price decline since December 2008.

“China’s real estate market seems to have reached a turning point,” wrote Zhu Haibin, a JPMorgan economist, in a recent report. “A housing market slowdown is the major near-term macro risk in China.”

The turning point seems to have come because China has simply built too much. Until 2011 the market mostly saw supply shortages, but today total floor space under construction is enough to satisfy well over four years of demand. In some of the worst-affected provinces, there is enough supply for more than seven years.

More than 90pc of households own at least one home and, for those urban households that own apartments, nearly 76pc of their assets are in real estate, according to Gan Li, director of the Survey and Re­search Center for China House­hold Finance.

He estimates that existing housing stock is more than sufficient for every household to own its home, but developers are still supplying well over 15m new units a year.

Back in Yujiapu, construction on the skyscrapers has slowed to a crawl as ambitious government planners ponder the possibility that the real estate bubble has finally burst and their dream of Wall Street on the Tianjin salt flats will not become reality.

Published in Dawn, Economic & Business, September 1st, 2014