China’s Housing: Living in a Bubble
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China’s Housing: Living in a Bubble

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Rising home prices, especially in major cities, are prompting a growing chorus of discontent among ordinary Chinese. My Japanese friends would no doubt feel more than hint of nostalgia should they visit Beijing. For just like the famous Japanese “bubble economy” of the late 1980s, Beijing has been virtually turned into one big construction site with constantly changing streetscapes.

Certainly, China’s housing market has been amazingly bullish for many years. Official figures for Beijing homes put the average price at $3,800 per square meter, up from around $500 per square meter in 1989 (incidentally, the peak of the Japanese real estate froth).

But don’t try telling Chinese real estate developers it’s a bubble. In their eyes, the local real estate market is no such thing. Prices will only continue to rise, they argue.

Ren Zhiqiang and Pan Shiyi are general managers of two well-known real estate companies. They successfully "predicted" the housing bull market, making them opinion leaders on Sina Weibo (China's Twitter), where they each boast about 15 million fans. While young people in other countries might admire Bill Gates, Mark Zuckerberg, or other famous entrepreneurs, Chinese netizens are starry eyed about two real estate developers. It is as good an indication as any of the tremendous influence that real estate has on Chinese society.

For their part, Ren and Pan have been harshly critical each time the Chinese government unveils measures in yet another bid to control the runaway market. And indeed, the government has not been hesitant about expressing its concerns, former Premier Wen Jiabao noting publicly that real estate prices were unreasonable, and tighter regulations were needed.

In 2006, a friend of mine bought a house in central Beijing. He paid about 10,000 yuan per square meter. Six years later, the price had risen to 60,000 yuan per square meter. That, of course, far outstrips any increase in the average wage over the same period. No wonder, then, that Chinese like to joke, “When it comes to house prices, the premier has no say, as it depends on the general managers."

For young Chinese owning your home is part of the “Chinese Dream.” The traditional view is that the house you live in ought to be your own. If you rent a house – no matter how lovely it is – it still belongs to someone else. In particular, goes the thinking, young couples planning to wed really should be having a new home. That explains the success a couple of years ago of the movie Dwelling, which has a plot based on that very same viewpoint.

It is this tradition that has always made rising home prices a social issue in China. Combine that with corruption, the increasingly tough time new graduates are having getting employment, forced relocations, and other issues, and the Chinese government unsurprisingly recognizes the political sensitivity of real estate.

Comments
5
Tom F
August 1, 2013 at 22:43

Yes agree with you, however Chinese excess capital has unique features, and unique investment scenarios. My guess is Chinese property investors see it as a long term investment (so liquidity is a low priority) and also that they are chasing negative correlation to their other investments.

mir
August 1, 2013 at 16:15

Housing is not a safe investment, because it has low liquidity.  If house price drops, transaction instantly collapses, you'll not be able to sell your house.

Tom F
August 1, 2013 at 13:36

it's only a bubble if debt pressure builds up, in China's case, it's more case of what to do with all the money you don't want to the government find out about. A friend of mine works in Beijing and Singapore, he says Chinese are parking their money in apartments in Singapore (leaving them empty, with no tenants), and happily getting capital gains of 11% year on year. Safer than money in the bank, higher returns, something to show for at the end of the day, and even safer than 'gold' as it turned out. Apparently they're now starting to look at Australia and New Zealand. Definition of bubble needs re-examination I think.

Observer
August 1, 2013 at 12:09

So this is the $100 Trillion USD economy of china we hear so much about from the chinese posters? <snickering>

Errol
August 1, 2013 at 01:31

I wonder if Ren and Pan's claim that there is no bubble is a form of exceptionalism…

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