Although the Chinese government has been constructively curbing the real estate market, the country's demographic landscape calls for a booming market instead.  In its annual report for 2006, real estate marketing research firm REICO forecast that the second and third baby booms of the last century will generate heavy demand for property and thus stimulate the growth of a prosperous real estate sector over the next 15 years.

According to the report, China has undergone three baby booms--in the 1960, 70s and 80s--and babies born during these booms have reached adulthood.  Land supply offers limited flexibility, and increasing demand leads to price fluctuation. Demography and the real estate market are, of course, always tied to one another, and changes in one can reflect and impact changes in the other.  Parents who initiated the baby booms provided an economic foundation for meeting practical property demands, which included loose currency policies and investment frameworks.  Their children in turn increase demand for property.

REICO said that adults aged 25 - 45 constitute the largest group residential property buyers.  Theoretically, those between 25 and 35 fall into the "marriage segment," generating less flexible property demands, while people 35 and over purchase property to improve living conditions, and are more flexible in their demands.  Statistics show that between 2006 and 2010, adults between 35 and 45, namely those born during the second baby boom of the 20th century, will come to constitute a larger share of the population pyramid; comprised of approximately 260 million people, this segment's drive to improve living conditions will stimulate property market growth.  Between 2010 and 2020, the segment of the population between 25 and 35 will reach 120 million, and will affect the property market as well.

"Babies born during the three booms of the last century started entering the marriage, parenthood, saving and consumption stages of life in the late 1990s," said Yi Xianrong of the Finance Research Institute at the China Academy of Social Sciences.  "China's economy has become more market-oriented, and has thus affected this generation's values, behavior, and consumption patterns.  The boom in the real estate market that has been going on since 1998 is to a certain extent associated with how people in this age group have developed as consumers."

If, as government statistics suggest, China sees a 1.5% annual urbanization rate over the next 10 years, there will be 20 million newcomers to the urban population.  If the average individual property demand is 25 sq meters, this new urban population would create a demand for 500 million sq meters every year.  There are currently 180 million urban households in China, with an average per capita architectural space of 25 sq. meters; if just 1% of these households seek to improve living conditions by switching apartments, this will create a demand for 180 million sq. meters per year.  The gap between property supply and demand will become a driving force for a positive real estate market.