During 2007-09, the U.S. Secretary of the Treasury called the bursting housing bubble "the most significant risk to our economy.

The increased foreclosure rates in 2006-2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, collateralized debt obligation (CDO), mortgage, credit and hedge fund and foreign bank markets.

Similarly, here is the interesting phenomenon in China,

Off-late there are huge amount of unsold new home inventories in China's property market, the property prices are soaring in the first-tier cities.

The property investment has been dropping since 2010, clearly in line with the "oversupply" story.

The official property price index which covers 70 cities illustrates this confusing picture:

The property prices grew by 51.9% y/y in Shenzhen, 17.5% in Shanghai, 10.3% in Beijing and 9.9% in Guangzhou. Other than the major cities, the property prices are still generally soft in lower-tier cities.

So, what & why does the prices spike up in the major cities then?

Due to an extremely accommodative monetary policy, this is another asset bubble. For those who have excess liquidity to allocate, they need to find a safe place to park their money. The property market in the first-tier cities become the "safe haven" where attracts a lot of attention.

That said, the properties with good location have been seen as "financial assets", rather than "commodities". Therefore, the asset inflation is a reflection of excess liquidity and lack of alternative investment vehicles, which will not change our macro view on China.