China has a problem in their real estate market where vapid speculation has increased prices.

As Reuters has reported, a record 200 property-tightening regulations were implemented in early 2018, designed to cool the market.

But demand has continued in cities with lower property values; despite the supposed reforms, housing prices have escalated even faster to June 2018, and demand for housing has resulted in over three years of  progressive monthly price increases.

To get around local buyer restrictions, buyers from elsewhere in China identify themselves as local new job seekers and have been able to purchase.

China perceives the responsibility for capping the market must rest with local governments, and is calling for improved regional regulations. This will mean changing the economic development paradigm  to not be dependent on land revenue, and changing how property purchases are perceived.

The New York Times observed that “investors snap up homes — in China, they are mostly apartments — hoping to ride a price surge. In the biggest cities, property prices on average have at least doubled over the past eight years. But vast numbers of apartments in many cities lie empty, either because the buyers have no intention of moving in or renting out, or because speculators built homes that nobody wants. In October, Xi Jinping, China’s president, told the nation that “houses are built to be inhabited, not for speculation.”

In China, real estate is roughly 75 per cent of household assets, and 20 to 25 per cent of the national economic output comes from construction and affiliated industries. In the United States real estate holdings comprise 33 per cent of household assets. China also has low real estate agent fees, easy mortgage lending and no property taxes. China is  planning to implement a  property tax to capture some of the uplift of the property purchases, but does not yet have a plan on how to roll this out.

There are two cultural factors that might be contributing  for the zeal to hold real estate. Land ownership was restricted after the 1949 Communist takeover, and was leased to developers after the death of Chairman Mao, making homeownership a precious commodity. As well people are expected to purchase a home before marriage. Because of the one-child policy of the 20th century, China has more men than women, and “that has set off a male-led surge to buy homes to make themselves more appealing husbands“.  Shang-Jin Wei, a business professor at Columbia University studied rising real estate prices in 35 cities and found a strong correlation with “lopsided gender ratios.”

You can watch this YouTube video that outlines some of the pressures and  issues on young housing purchasers in China here.

Image: The Epoch Times

Comments

  1. China’s president, told the nation that “houses are built to be inhabited, not for speculation.”

    Houses may be built to be inhabited, but they get built because of speculation.

    1. That has not always been the case in history. People make the mistake of thinking the last ten years in real estate, whether it is here or in China is “normal”.

  2. A friend with business in China says that people like him (well off, middle-aged) can easily own 20 properties. Many in unoccupied resort developments, I suspect. No trust in banks and getting more difficult to export wealth elsewhere.

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