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China’s Housing: Living in a Bubble (Page 2 of 2)

A former railway minister, who lost his job over corruption, was found to be in the possession of no fewer than 374 houses. He’s not alone. Other officials have been found to own dozens or even hundreds of houses, not for sale or for rent, but for potential capital gains. That of course doesn’t sit well with ordinary Chinese who struggle to afford even one home. The explosiveness of stories of real estate corruption is a major reason why the Chinese government seeks to control real estate prices.

In China’s smaller cities, real estate price increases have been relatively mild. Consequently, residents are permitted to acquire multiple homes, assuming they have the money. Conditions are much stricter in Beijing, Shanghai, and other major cities with runaway housing prices. In these markets, the Chinese government has restricted home buying, as a key measure for controlling prices. In Beijing, for instance, you can buy your principal place of residence; buying a second home becomes much more difficult. In Guangzhou, you can buy a second home, but at a much higher lending rate.

This registered permanent residence is an important link for Chinese and their city. If you have no permanent residence but you want to buy a house, you must submit a local work certificate and a social insurance enrollment certificate for five years in a row, otherwise you're out of luck.

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The government likes to think that these purchase restrictions are effective at controlling home prices, but what ordinary Chinese want is greater transparency. It is for instance almost impossible to get information on house purchases from the Internet, which means that nobody knows which officials own multiple properties. The suspicion is that the government dare not offer this kind of transparency, because it would reveal legions of civil servants with more than the allowed number of properties in their possession.

But although ordinary Chinese complain constantly about rising home prices, don’t expect them to take to the streets in protest, like some of their overseas counterparts. Ask young people why they don’t protest, and you’ll often hear the answer: “What is the point of taking to the streets? you could just end up even worse off."

In the major cities, most young people are forced to use money from their parents to make a down payment on a mortgage loan, and then work hard and live frugally to repay the loan. The down payment is usually 30% of the total price, and the monthly installment payment usually represents 30-40% of their wages. It is quite common in China for this commitment to almost entirely take over one’s life. Most people resign themselves to their fates, criticize the government on the Internet, save a few harsh words for the likes of Ren Zhiqiang and Pan Shiyi, and then leave it at that. Still, each report of higher prices chips away at the government's credibility.

The real estate industry may have played a role in China’s economic development, but it appears to have been for the benefit of the few at the expense of the many. In the long term, the trade-off seems poor. For that, not just the general manager, but the premier too needs to take responsibility.

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