Construction of new homes continues unabated in Shanghai
In the street, Ma Qin looks like a typical young professional representative of the vitality of China’s most cosmopolitan city. The 30-year old works a nine-to-five job in an IT consultancy company in a downtown office. He wears a suit every day and commutes on the subway. He makes about $2,000 every month, not a big number in the city but still the envy of most at this age nationwide.
Back home, he gets reminded of the gap between the city’s ultra-modern skylines and the reality of life. He lives in a 50-sq-m rented apartment costing 2,000 yuan per month. He has to cope with damaged facilities, a long distance to commute every day, and shares the toilet and kitchenette and the rent with a flat mate he does not know.
Even after eight years of hard work and scrimping by, Ma still finds the dream of owning a home in Shanghai far beyond his reach. There’s 200,000 yuan in his bank account, which would have been sufficient for the downpayment on a small flat on the city’s outskirts earlier in 2009. But home prices have nearly doubled in recent months, shattering his hopes. “The only chance I have is if there is a dramatic decline in the price, which looks impossible,” he said.
While China’s massive credit expansion in 2009 successfully helped the economy stave off further sufferings from the global financial crisis and possibly secure more than 8 percent GDP growth, the soaring asset prices have also made millions of residents like Ma feel left out in the cold.
A recent Chinese Academy of Social Sciences survey showed that up to 85 percent of people polled said they could not afford a home. The average house price in the cities has exceeded an average family’s affordability, said the report.
Housing prices in 70 major Chinese cities scored a six-month rally in November with a 5.7 percent growth year-on-year, the fastest pace over the past 16 months, according to the National Bureau of Statistics (NBS). November was the sixth consecutive month that property prices in urban cities saw a rise.
The real growth momentum in some hot areas far outpaced the official statistics. The average property price in Beijing soared 64 percent to 17,200 yuan per sq m in November from January’s 10,500 yuan per sq m, according to Beijing Weiye Real Estate Agent. Property prices surged 47.47 percent to 18,686 yuan per sq m in November from 12,674 yuan in February, Shanghai Uwin Real Estate Information Service Co. said.
It costs an average couple 20 years’ salary to buy an apartment around the Fifth Ringroad in Beijing, 18 years of a Shanghai couple’s salary to buy a flat outside the Outer Ring, and 16 years’ income of a couple buying in Shenzhen’s outskirts, said a report release by Hong Kong-listed property agency Midland Realty. “A reasonable housing-price-to-income ratio should be between six and seven,” said Chen Jie, a professor of housing studies at Fudan University.
Local governments are widely seen as the largest beneficiary of the property boom. Statistics from China Index Academy show that as of November 23, the revenue of land sales in China’s major 70 cities doubled from a year earlier, with Shanghai (82.1 billion yuan), Beijing (63.9 billion yuan), and Hangzhou (52.3 billion yuan) topping the first three places. Selling land in the third quarter in 2009 alone has earned the Shanghai local government 49.2 billion yuan.
“It’s not practical to persuade local governments to rein in the housing market because that is equal to killing their biggest revenue contributor, and this is especially the case in a country where GDP is still a leading indicator to gauge the performance of local officials,” said an analyst, who spoke on condition of anonymity.
The frenzy of rich buyers also fueled the unbridled growth in property prices. Statistics from NBS indicated a total of 75.2 million sq m of gross floor area was sold in the first 11 months of 2009, up 53 percent over the same period last year.
“There have been measures and policies made previously by the central government to tackle high pricing, but in investors’ minds there are few other assets that can offer such stable and hefty returns as real estate, and the continuous price increases have made them further believe they should jump on to the wagon as quickly as possible,” said Chen Jie of Fudan University.
The central government has been keeping a close watch on the soaring house prices and decided to step up measures to cool them down. In a meeting of the State Council On Dec 14, Premier Wen Jiabao said the country will speed up the construction of public housing, improve supervision of the property market and stabilize market expectations on property prices.
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In a Dec 27 interview with the official Xinhua News Agency, Wen further warned that “property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize them”.
However, analysts don’t expect house prices to drop significantly following a new round of policies, because it involves too many factors. “The maximum of a price drop is 10 percent. And the best timing for potential homebuyers to enter the market may come in the second half next year,” said Cao Xute with Sinolink Securities.
David Chen, senior director of residential project marketing services China with CB Richard Ellis (CBRE), argued, however, that the idea of everybody owning a house should give way to the idea that everybody has a house in which to live, whether it is leased or owned. “The government can use the tax leverage to balance the housing market, for example by taxing the rich who own more than two houses or high-end properties at a higher level. The revenue could be channelled into government-subsidized housing to support low-income families,” said Chen.
Chen Sheng, a director with China Index Academy, echoed this view. “It’s necessary to take the steam off the overheated housing market. But we should also be aware of this fact: People should spend on homes in accordance with their income,” he said.
For instance, low-income families can choose low-rent houses. Low-to-middle income families can buy government-subsidized apartments if they can afford to. The middle class could purchase their apartments with a mortgage. As for the rich families, they are able to buy luxury apartments or villas as they wish, although at the same time they have to pay higher maintenance fees and taxes. Every family should find their own type of living conditions according to their abilities, said Chen Sheng.
Many have opted for a realistic attitude towards the property market. “I won’t leave Shanghai because my entire personal network, my professional experience, and my dreams are here. If house price do not drop significantly in the near future, I won’t buy one until I find a better half and marry her,” said Ma Qin.
“I love Shanghai. It’s one of the most vibrant and beautiful cities in China despite terrible house prices that make me feel down sometimes.”