An estimated 64 million apartments and houses sit empty in China today. That number is almost two times the population of Canada, but if we consider that each of those properties is the average dwelling for a typical Chinese family of three (parents and one child), all those vacant apartments and houses could accommodate almost 200 million people, which is the equivalent of two-thirds of all U.S. souls or more than 15% of China’s 1.3 billion population.
Escalating prices in China have transformed the country within two decades from a landscape of modest houses and huts next to vegetable fields to modern houses and skyscrapers scattered all over the country, specially in major urban centers like Shanghai and Beijing. Statistics from Goldman Sachs showed that over the past six years, housing price hikes have outpaced income rises by 30 percentage points in Shanghai and 80 percentage points in Beijing. In Beijing, the housing price of per square meter is as much as a resident’s seven months’ salary on average.
The Chinese property market has set new record highs after the government unleashed $1.3 trillion in new bank lending to counter the global recession. The nation’s real estate and stock markets are a “bubble” that will burst when inflation accelerates in 2011, as described by former Morgan Stanley chief Asian economist Andy Xie:
“China’s asset markets are a Ponzi scheme,” said Xie, now a Shanghai-based independent economist. “Property is heading for one huge bust that will take a year and a half to unfold.”
Premier Wen Jiabao said late last year that property speculation must be suppressed, and the government proceeded to reinstate a sales tax on homes sold within five years of purchase after reducing the period to two years in January 2009. These new regulations are meant to address the escalating price trend, although many analysts doubt they will have any real effect. Take for example Gloria Gu, who paid $483,000 in mid-2009 for an apartment near Shanghai’s financial district so her 3-year-old son could attend one of the city’s best kindergartens. Six months later, a similar place in her building sold for $615,000.
Borrowers are maxing out all available lines of credit, fearing that they might miss out on this extraordinary opportunity. Luo Yan and her husband took out the maximum amount of money possible, a story reported by the China Daily: “Thirty-year-old Luo Yan and her husband raced to complete the purchase of a three-bedroom apartment in Shanghai with the help of an 800,000 yuan ($117,000) mortgage. The amount they borrowed was the maximum they qualified for.” As Luo put it, “I am afraid that if we don’t do something now, we will certainly miss the boat.”
But there are also demographic factors. Due to the shortage of women, men in China feel they need to buy a home in order to get married. And the harsh truth is that it certainly makes them look like better candidates.
Also from the Wall Street Journal:
China’s Looming Real Estate Bubble