Is there really a property bubble?

Soaring residential real estate prices have convinced many that Beijing has a property bubble. That would be good news for first-time homebuyers frozen out of the market by high housing costs. After the US and Japanese real estate bubbles popped, property asset prices plunged, making housing more affordable.

But while Beijing's residential housing market has become frothy, the factors that fueled the latest Japanese and American property bubbles are largely absent here. Thus market corrections will only somewhat reduce the capital's sky-high home prices.

One heavily cited sign of a Beijing real estate bubble and an impending crash in housing prices is the ratio of home prices to average annual household incomes. This ratio now stands at 10 throughout China and is certainly higher in the capital. In most developed economies, by contrast, this ratio is four or five.