More fears of a China real estate bubble that is now veering toward an eventual meeting with a pin have emerged after the latest round of housing reports show the government’s efforts to slow things down have met with only modest success. From Lillian Liu of Finance Asia comes this report on the latest worries and the likely outcome.

It isn’t a question of whether China’s property market is a bubble, but when it will burst.

Xiao Wan bought a 65-square-metre apartment near the North fourth ring road in Beijing last year. He couldn’t even recall clearly the room layout but remembered it was the first decent enough apartment that he found fairly affordable. He hastily signed the purchasing documents, but has never lived there and does not plan to.

The 27-year-old lives with his friend near the third ring road in China’s capital city. He bought the apartment as an investment, which so far is panning out. “I bought it for Rmb15,000 ($2,214) per-square-metre; it now can be sold at Rmb25,000,” he said. “It’s good just having it.”

Wan is not alone. Many homebuyers nowadays in China consider their property assets as part of their long-term savings plan, as well as a hedge against inflation.

Why property? China’s tightly run financial system leaves only three places for its zealous savers to put their money. Bank deposits are one option. But they yield 2.25%, less than the 3.1% rise in May’s consumer price inflation. The equity markets are a second choice. But stocks have been performing poorly; Shanghai’s benchmark index was one of the world’s worst performers in the first half of 2010. (And the bond market is underdeveloped.) Even with its high transaction costs and manic price moves, property has become the preferred investment choice for everyone from young married couples to middle-aged factory workers trying to ensure their retirement.

For those of you keeping track at home, that would be a gain of about 67 percent over the last year for Xiao Wan and untold billions for his fellow real estate investors.

Even with bank deposits paying only 2.25 percent (a rate that some investors in the U.S., including yours truly, would be ecstatic about rather than the one percent or so now currently offered), you’d think that some investors would be taking some of that money off the table at this point, but, apparently not, even with the alarming rise in vacancy rates.

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

This has fuelled worries that China’s property market is bubbling. Yi Xianrong, a prominent economist, said the numbers are “shocking” and the country’s property market is dangerously overheated. “Many of them are bought by property speculators betting on a constantly rising property market,” he wrote in a commentary to the official newspaper, the People’s Daily. “This is a serious threat to the sustainability of China’s economy.”

Crowds of eager customers carrying several bags of cash (cheque books are not commonly used on the mainland) and folding chairs can frequently be seen waiting at the sales offices in major cities in China. Not surprisingly, home prices in tier-one cities surged around 50% last year, statistics show.

“Some of the apartment prices in tier-one cities match those in Manhattan, but China is still a developing country,” said Frank Yao, senior portfolio manager at Neuberger Berman, a wealth management firm. “When the properties become less affordable, developers will eventually collapse,” he said, noting the recent trend in real estate prices indicate signs of a potential bubble.

But is China’s property bubble about to burst? That’s the million dollar question. “The data about the property market in China is not complete; it’s very difficult to say how big the bubble is. And we don’t have sufficient evidence to precisely illustrate the prospect,” said Shen Minggao, chief economist for Greater China at Citi.

The rest of this is well worth a look, if for no other reason than that it comes from a non-U.S. news outlet and uses local sources rather than the opinions of Americans.

Among other things, you’ll learn that, up until last year, most home purchases were financed by borrowing from friends and relatives (China’s one-child policy making that a  natural source of funding) but banks are now providing home loans to about half of all buyers.