?????? Is China's real estate bubble about to burst?

China is making capital markets around?the world?nervous.?The?collapse of Evergrande, the country's largest real estate developer, could be a?reflection of the fact that the Chinese real estate market has run out of steam.?In?other words, what we are seeing with Evergrande could be just?the tip of the iceberg.

"China is probably the most overvalued real estate market in the world. Evergrande is a symptom of that."?- Michael Pettis, a Beijing-based economist

For years the possible bubble in the Chinese real estate market and the emergence of ghost towns all over the country has been a clear sign of trouble. However, over the last few years the imbalances have reached historic levels. Do you want some facts? Then check this out:

• The rate of empty homes is already above 20%?of the entire housing stock in the country.
• The?weight?of this sector in China is?close to 30% of GDP, two or three times the usual level in other large economies. It is also substantially larger than the real estate sector was in countries such as Spain, Ireland or the United States before 2008.
• Housing accounts for about 80% of Chinese household wealth, while in most countries it is between 30% and 40%. Even in Japan in the late 1980s, when the value of the imperial palace in Tokyo alone was estimated to be worth more than the entire Californian real estate market, household exposure never exceeded 65%.
• A particularly alarming fact: most?homes are no longer bought to live in, but are bought by owners with multiple properties.

• Everywhere you look, property valuations are sky-high. Whether we take into account the number of years of household income needed to afford the cost of a home or the performance of the rental market, the Chinese real estate market leads the world.

To make matters worse, demographics are not helping. China's working-age population has been shrinking since 2012 and official forecasts suggest that the total population will begin to decline from 2027. Although there are reports that China is already losing population. In other words, there?does not seem to be a large pool of potential demand.

Why is it important?

Everything suggests that, in recent decades,?the Chinese real estate market has experienced a huge bubble that could now be about to burst. The problem is not only that the value of housing accounts for almost 80% of the wealth of Chinese families or that the sector represents almost 30% of all economic activity in the country.

The problem also lies in the implications that an uncontrolled puncture could have for the banking sector.?According to estimates from Nomura,?Chinese real estate developers alone accumulate debts of more than US$5.2 trillion.?That is more than the entire GDP of Japan.

To this amount we have to add the growing mortgage commitments of Chinese families, which have not stopped increasing in recent years. In total,?close to 60% of the financing granted by the immense financial system of the Asian giant is related to the real estate sector.

The Chinese government, aware of the economic and political problems that an uncontrolled real estate sector could cause, has been introducing measures to try to cool this market for some time now, but so far without success.

This is, at present, the biggest challenge facing the Chinese economy.?Managing what all signs indicate to be a gigantic real estate bubble.