![]() “Clearly, housing in China has become an object of speculation which has made it unattainable for first-time homebuyers,” analysts at BCA Research wrote recently. Investors are instead buying the properties solely because they expect the value to keep going up. In other words, the buy-to-let strategy that has proved popular for wealthy people in western countries such as the UK doesn’t make sense in China. Rental yields are typically about 2% in China, which is way below the typical mortgage rate of 5.4%. No wonder that Xi had said the year before that houses should be for “living in, not for speculating”.īecause these investors rarely rent out their properties, one-fifth of China’s housing – or at least 65m homes – lie empty. In 2018, 22.5% of homebuyers already owned two or more dwellings, while 66% owned one. The same survey shows that first-time buyers were being replaced at a rapid rate by investors. By 2018, after the property and construction sectors were jet-propelled by the 4tn yuan of post-financial crisis stimulus, that figure had dropped to 11.5%. Between 2008-10, the proportion of people buying homes in China who were first-time buyers was 70%, according to the Survey and Research Center for China Household Finance. However, the speculative nature of the market is what really makes China stand apart. The average ratio in the UK is about 10 and in the US it is four, although mortgage rates are much lower in those countries, making it easier for households to manage the debt. The notion that prices can only go up has made buying a house in China enormously expensive, with a house price-to-household income ratio of 19 in the biggest “tier-one” cities such as Beijing or Shanghai, 10 in tier-two and seven in tier-three cities, Canada-based BCA Research says. After all, China has a population of 1.4 billion and needed to build millions of new homes because hundreds of millions of people have moved to urban areas in the past 30 to 40 years. Such a large property market does not necessarily create a problem. Once related property market activity is added to the Chinese numbers, the proportion of GDP is more like 30%. This compares with a 7% share of GDP in the US at the peak of the housing boom in 2005. Real estate investment accounted for 12-15% of GDP in China between 20, the Harvard economists Kenneth Rogoff and Yuanchen Yang estimate. , But the question is whether the president’s property tax experiment to bring the housing market under control is too little, too late. Xi has clearly had enough of the sector’s excesses. Kaisa Group, second only to Evergrande in terms of risky borrowing in US dollar bonds, became the latest focus for concern when its shares were suspended in Hong Kong on Friday morning because of cash flow problems. Developers have to repay around $92bn in the next year, and analysts at S&P have estimated that more than a third could experience difficulties meeting those obligations. When the music stopped, Evergrande was stranded on the dancefloor with $300bn of debt, and it faces its latest pay-up-or-default deadline on 10 November.Įvergrande is just the tip of the iceberg though. This decades-long party saw China’s property developers build a debt mountain of around $5tn, according to analysts at Nomura, before Beijing called time by restricting what they could borrow. ![]()
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