China Real Estate Won't Bring It Down: Roach

Fears of a bubble building in China's property markets were debunked by Stephen Roach, senior fellow at Yale University, as investors become increasingly concerned over the country's rising property prices.

According to the former non-executive chairman of Morgan Stanley Asia, China's residential property market represents only around 5 percent of the country's gross domestic product (GDP), thus if things go bad it will not devastate the economy.

(Read More: What the US Can Learn From China: Stephen Roach)

"Of that 5 percent [GDP], only 2 to 3 percent is at risk...Does that sound like an economy that will be strangled by a housing bubble?" he told CNBC. "This is not going to bring China down, and unlike the U.S., which allows bubbles to develop, the Chinese are very aggressive in trying to control that kind of thing."

At a property trade fair in Beijing, China
Getty Images
At a property trade fair in Beijing, China

Speculation over the re-emergence of a bubble in China's property market heightened this week after the government introduced policy measures seemingly designed to cool the market. The measures included an increase in down payments and loan rates for buyers of second homes in cities where prices are shooting higher.

The Shanghai Composite slumped 3.7 percent by Monday's close, following the announcement late on Friday. Meanwhile a gauge of property developers listed in Shanghai dived by 9.3 percent by Monday's close, its largest daily loss since June 2008.

(Read More: China Shares Slump as Property Curbs Hit Developers)

Roach rebuffed claims that the cooling measures were a sign that the Chinese government was concerned over a bubble, and said they were a natural consequence of the country's rapid urbanization process.

"When you move 15 to 20 million people a year from the country to the cities, you have to build cities in anticipation of that. Today's ghost city is tomorrow's fully populated metropolis," he said.

(Read More: Chinese City Has Many Buildings, but Few People)

Roach added that a common misconception made by investors was to think of Chinese policy makers as reactive.

"Don't think of China as a reactive place …they [policymaker] are much more strategic than we are," he added.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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