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April 15, 2010

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Home » Opinion » Chinese Views

'Dumbbell' wealth gap and sagging mid class

By Ni Tao | April 15, 2010, Thursday | Print Edition

IN a rare move, several august national media outlets including People's Daily and Xinhua News Agency recently leveled a fortnight-long broadside at China's runaway home prices.

Conventional wisdom suggests that such a media salvo is a harbinger of coming government overhaul of a market gone awry.

This conjecture seems to be borne out by the recent revelation that Shanghai is mulling the possibility of imposing a property tax that targets speculative investors owning multiple apartments.

According to a front-page story in the April 8 edition of Shanghai Securities News, the tax would apply to home owners with more than one luxury property that they have leased or left vacant in hopes of capital appreciation.

The size of the properties is the criterion for classification as luxury homes. The tax may apply to both existing apartments and new properties, the report said, quoting real estate experts. If adopted, this measure would cool the property market that has been plagued by over-speculation, some analysts argue.

The trickiest part of this tax, however, is getting the rate right; if it is set too low, then speculation would persist, said Professor Yao Lingzhen in an interview published in Commercial Times on April 10. Yao is deputy director of the Real Estate Institute at Shanghai University of Finance and Economics.

For instance, if the tax rate in Shanghai stands at 0.8 percent or 1 percent while home prices grow 10 percent annually, the property tax could hardly put a lid on overheated investment, Yao said.

In addition, for speculators able to grease the palm of officials in return for opaque deals, there is a good reason to believe the tax would mainly force retail investors out of the market while giving bigger, well-connected players an even freer rein in manipulating prices.

Effective or not, a tax won't have the immediate effect of putting significantly more houses in the hands of millions of Chinese without a roof of their own, or making life easier for countless people struggling to pay their mortgages.

But curbing irregularities in the real estate market is increasingly becoming an imperative as ever-surging home prices threaten to exact a huge social cost, in that they may liquidate the country's growing middle class.

"If the current home price levels stay that high, China's middle class will crumble and the social structure will be one in the shape of the letter M," said Tang Jun, a researcher with the Chinese Academy of Social Sciences (CASS), in an interview published in Xinmin Evening News on April 8.

The "M-shaped" social structure that Tang referred to resembles a dumbbell, with big weighted ends and a narrow middle bar - signifying a majority of the population is either locked in poverty at one end or wallowing in ultra-affluence at the other. The tapering middle section symbolizes the minority middle class.

Housing craze

Though regional disparities in wages, living standards and self-identification make it hard to define China's middle class as a single group, members do share something in common: a monthly salary of more than 5,000 yuan (US$733), high job prestige and a strong sense of belonging, said Tang in a February 1 report in Beijing Evening News.

China's housing craze has cast all the three standards into doubt, as a growing number of people who qualify as middle class entrants are being reduced to "mortgage slaves."

Home ownership may be the epitome of the American Dream, but in China it is often a riches-to-rags story. Little wonder, then, that when CASS released a report in February saying middle class professionals now make up 23 percent of the country's entire population, many questioned the figure's accuracy.

Apart from contributing to social stability, the growing middle class is also a mainstay of boosting China's anemic domestic consumption.

Nevertheless, the arduous quest for home ownership will likely wear out middle-class aspirants, Tang said, adding that it would entrench inequality in wealth distribution and exacerbate social polarization.

"Soaring home prices will boost the fortunes of those middle-class property owners with a vested interest in seeing their properties appreciate in value. In the meantime the prices will doom those facing mortgage pressure or unable to afford an apartment to downward social mobility," he said.

My editor recently received a late-night call from his mother imploring him once again to buy an apartment in Shanghai before skyrocketing prices place it permanently out of reach.

He rents an apartment about 20 minutes' walk from the Westgate Mall on Nanjing Road W. The asking price is now 30,000 yuan per square meter, double the level in 2006, when he moved in and price per square meter was 15,000 yuan. The apartment's price has jumped almost sixfold since 2000, when the residential complex opened for sale at 4,500 yuan per square meter.

"This dramatic price hike leaves me to play catch-up all along. Once you feel you've saved enough for the down payment, you're told the home's price has again increased," he told me, a little deflated.

Even so, he has made up his mind to buy a home this year against all odds. It remains to be seen to what extent Shanghai's property tax, once implemented, would ease his burden.

What's clear is that millions like him will rush in when the price rise has yet to show signs of abating, even if it means falling from their hard-won "middle class" grace.

Chinese Views


 

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