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When buying a flat blows out buying power
December 21, 2009, Monday
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GUO Haiping, a 33-year-old married woman with a child of two, is desperate to buy a home, but can't find the cash.
Help might be at hand, however. Haiping's younger sister, Haizao, thinks she knows how she can scrape together the money for a down payment. But then everything starts to go wrong.
Such are the bare bones of a story that has struck a chord with the Chinese public and sparked much debate.
"Wo Ju "(Humble Abode), a TV drama series set in a city named Jiangzhou (a presumed pseudonym for Shanghai), has recently been aired across the country.
As TV plots tend to do, one thing leads to another, with the younger sister becoming the mistress of the local mayor's secretary, who is eventually sentenced to death for corruption.
While real life is usually not as dramatic, it's easy to see why China's hot property market is providing high-tension fodder for a TV show.
Prices in some cities have climbed so high that many first-time buyers are wondering how they will ever be able to afford their own homes.
A year ago, as the global economic slowdown began to drag down China's growth, the government rolled out measures to stimulate the domestic property market.
Interest rate cuts and lower deposit requirements were among the measures introduced. In response, those Chinese who could afford it have gone on a house-buying spree.
Sales in the year to November in six of the 11 cities monitored by the China Index Research Institute doubled over the same period last year. Transactions in Shanghai jumped 70 percent - the lowest rate among the cities monitored - while Hangzhou reported the highest leap, a staggering 162 percent.
What is behind the staggering growth? A massive burst of liquidity is responsible for the short-term trend, say observers.
But at a more fundamental level, they cite a number of factors such as a monopolistic land sales regime that often distorts supply.
Economist Zhou Tianyong, deputy director of research at the Central Party School of the Communist Party of China, said in an interview published on December 3 in the Economic Observer, a weekly Beijing newspaper, that soaring property prices are often the result of the monopolistic way public land is auctioned.
Land in China is often sold by local governments, which rely heavily on the proceeds to meet their funding needs.
This means that many local governments have a vested interest in restricting the supply of land available to developers and hoping that prices stay high.
Beyond the hard realities of policy and economics, some argue that cultural factors need to be considered. High demand for property is a reminder that the Chinese buy houses almost as a hobby, says Tony Young, a senior analyst at Greenwood Asset Management in Shanghai.
Ye Hang, an economics professor at Zhejiang University in Hangzhou, says rapid growth in China's property sector could bring inflationary challenges, but not in the short term.
What's more, the boom could result in greater income disparities and weakening consumer power for many, according to blogger and economics columnist Ye Tan.
"If people lose the majority of their consumer power after buying an apartment, what will the consequences be?" she asks.
(Reproduced with permission from Knowledge@Wharton. http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. The views expressed are its own. Shanghai Daily condensed the article.)
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