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Home » Opinion » Chinese Views
Property buyers like moths to a flame
By Pixel Pan |
April 30, 2010, Friday
|
Print Edition
Print Edition
A NEW set of regulations, gradually clarified over the past week, has been widely heralded as a move that will finally put a leash on the skyrocketing home prices in China.
New measures to restrict mortgage lending, increase land supply and limit developers' profits are already taking effect.
The central government will double land supply for homes to 180,000 hectares this year. Developers are restricted from pre-selling unfinished properties or delaying the sale for future gains.
For individuals, down payments for second home purchases go up from 40 percent to 50 percent, and the interest rate is to be no lower than 1.1 times the base rate.
The definition of a second home is also tight. It goes by household rather than individual.
On paper this adds up to real impact on the market. So do multinationals, such as Citigroup, seeing 20 percent drop in prices by the end of the year.
However, the public remains unconvinced, as many newspaper polls suggest.
While we await a verdict from the market, here are some characteristics, unique to the Chinese real estate market, that might help those of our foreign readers who are perplexed by what they see.
1. Where does the money come from?
For people of average income in Beijing and Shanghai, a regular two-bedroom apartment may cost 20 or 30 years of their income, far higher than the international average of six years.
And yet, many observe that the risk of bubbles in Chinese real estate is in fact much smaller than in Western economies.
Take Shanghai for example. According to a local real estate research firm, one third of all purchases are paid in full without mortgage, and one third of them have at least 50 percent down payment. That leaves the proportion of high-debt consumption to only one third.
Naturally, we ask where does the money come from?
First of all, when the Chinese buy homes, it is a "family" effort; young adults mostly buy with the help of their parents.
Second, money doesn't just come from wages. Much comes from policy. In the 1990s, there was a wave of privatization of state subsidy housing, allowing employees to buy former public assets at nominal prices.
With the inheritance from the command economy, many then went on to profit from either trading on the market, or gain from the often-generous relocation and compensation fee from commercial developers or the city.
2. Why are the Chinese so obsessed about housing?
Home means more than just a place to live for the Chinese. Seeing how young Chinese in their 20s and early 30s complain about not being able to afford an apartment in the city is perhaps a laughing matter for their Western counterparts, for the experience in the Western market has been that you shouldn't be able to buy.
It is the cultural attachment to having a home of your own, like rooting a family, that drives many into buying like moths to a flame.
The stark gender imbalance also comes into play. Noting that 120 boys are born to every 100 girls, the Chinese Academy of Social Sciences says this is the greatest demographic challenge the country faces. Suffice to say that owning an apartment makes a bachelor that much more eligible.
3. The hukou system
Urbanization or migration is another major driver behind home purchases in the cities. Being a homeowner entitles you to a local residency status and its many perks in the city, much like a green card to the US.
The hukou, or the geographically divided household registration system, has been the main framework in which China has organized the residence, health care, subsidies, education and pensions of its 1.3 billion people.
In many ways, people have grown skeptical towards the political will and ability to tamp down soaring real estate prices.
In the last round of tightening, the introduction of property sales tax made the headlines in 2008. But soon after, the tax was suspended, giving way to an overall stimulation plan driving towards that 8 percent growth target.
Neither does it help to convince the public of the political will, when it seems local governments and state-owned enterprises are the beneficiaries from a red-hot real estate market.
Governments at various levels cashed in 1.6 trillion yuan (US$234.4 billion) from land sales in 2009, accounting for roughly 4.7 percent of last year's GDP, according to statistics from the Ministry of Land and Resources.
(The author is a freelancer in Shanghai. The views are her own. Her email: pixelshanghai@gmail.com)
New measures to restrict mortgage lending, increase land supply and limit developers' profits are already taking effect.
The central government will double land supply for homes to 180,000 hectares this year. Developers are restricted from pre-selling unfinished properties or delaying the sale for future gains.
For individuals, down payments for second home purchases go up from 40 percent to 50 percent, and the interest rate is to be no lower than 1.1 times the base rate.
The definition of a second home is also tight. It goes by household rather than individual.
On paper this adds up to real impact on the market. So do multinationals, such as Citigroup, seeing 20 percent drop in prices by the end of the year.
However, the public remains unconvinced, as many newspaper polls suggest.
While we await a verdict from the market, here are some characteristics, unique to the Chinese real estate market, that might help those of our foreign readers who are perplexed by what they see.
1. Where does the money come from?
For people of average income in Beijing and Shanghai, a regular two-bedroom apartment may cost 20 or 30 years of their income, far higher than the international average of six years.
And yet, many observe that the risk of bubbles in Chinese real estate is in fact much smaller than in Western economies.
Take Shanghai for example. According to a local real estate research firm, one third of all purchases are paid in full without mortgage, and one third of them have at least 50 percent down payment. That leaves the proportion of high-debt consumption to only one third.
Naturally, we ask where does the money come from?
First of all, when the Chinese buy homes, it is a "family" effort; young adults mostly buy with the help of their parents.
Second, money doesn't just come from wages. Much comes from policy. In the 1990s, there was a wave of privatization of state subsidy housing, allowing employees to buy former public assets at nominal prices.
With the inheritance from the command economy, many then went on to profit from either trading on the market, or gain from the often-generous relocation and compensation fee from commercial developers or the city.
2. Why are the Chinese so obsessed about housing?
Home means more than just a place to live for the Chinese. Seeing how young Chinese in their 20s and early 30s complain about not being able to afford an apartment in the city is perhaps a laughing matter for their Western counterparts, for the experience in the Western market has been that you shouldn't be able to buy.
It is the cultural attachment to having a home of your own, like rooting a family, that drives many into buying like moths to a flame.
The stark gender imbalance also comes into play. Noting that 120 boys are born to every 100 girls, the Chinese Academy of Social Sciences says this is the greatest demographic challenge the country faces. Suffice to say that owning an apartment makes a bachelor that much more eligible.
3. The hukou system
Urbanization or migration is another major driver behind home purchases in the cities. Being a homeowner entitles you to a local residency status and its many perks in the city, much like a green card to the US.
The hukou, or the geographically divided household registration system, has been the main framework in which China has organized the residence, health care, subsidies, education and pensions of its 1.3 billion people.
In many ways, people have grown skeptical towards the political will and ability to tamp down soaring real estate prices.
In the last round of tightening, the introduction of property sales tax made the headlines in 2008. But soon after, the tax was suspended, giving way to an overall stimulation plan driving towards that 8 percent growth target.
Neither does it help to convince the public of the political will, when it seems local governments and state-owned enterprises are the beneficiaries from a red-hot real estate market.
Governments at various levels cashed in 1.6 trillion yuan (US$234.4 billion) from land sales in 2009, accounting for roughly 4.7 percent of last year's GDP, according to statistics from the Ministry of Land and Resources.
(The author is a freelancer in Shanghai. The views are her own. Her email: pixelshanghai@gmail.com)
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