There’s been a lot of talk regarding the “housing bubble” in
the Chinese economy recently. The reason for this is because of the immense
growth in the value of Chinese property, having increased by a factor of about
5 times between the year 2001 and 2013. Despite being low quality and
overpriced, the properties are still flying off the market, being purchased
instantly. It is for this reason that a large percentage of Chinese citizens,
namely the middle and low class, are unable to afford homes in the large,
profitable cities.
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| Chinese property taxes have been increasing steadily |
But if
the middle and low class in China aren’t buying the houses, then who is? The
root problem stems from the wealthy upper class of China; with large amounts of
excess income, the upper class looks to invest their money to preserve and
increase the value of their toil. However, investment options in China are
severely limited: banks offer low yields and the volatile Chinese stock
exchange offers risky, undesirable companies that are not worth investing in.
Further increasing the problem is the fact that China’s top companies, such as
Tencent and Baidu, are listed on foreign stock exchanges – SEHK and NYSE
respectively. Thus, the only real option for the wealthy to invest in is
houses.
The
result of this phenomenon is the mass construction and artificial inflation of
property in China. Residents in Chinese apartment complexes say it is not
uncommon to see half of the complex owned but vacant due to these investors. Additionally,
this false demand drives the construction of even more complexes, and sometimes
even cities. “Ghost cities,” cities that were created with the
purpose to help curb the demand of housing but fell victim to wealthy investors, are the result of this.
purpose to help curb the demand of housing but fell victim to wealthy investors, are the result of this.
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| "Ghost Cities" are becoming increasingly more common in China |
But then what’s the government to do? Historically, China has not had property taxes.
However, recently the government has been testing property taxes in certain cities to gauge how well it combats the problem. It currently has not ruled out expanding the property tax, but states that it will first need to look into tweaking it first. Other possible solution the government is looking towards is implementing more strict regulations on those who are hoping to purchase multiple properties. One example is the government requiring potential investors put down a larger down payment for a property should it not be their first property. Another possibility the government is looking towards is requiring banks not provide loans to those looking to purchase multiple properties.
There have been arguments on whether the bubble is real or not. Some claim that there is not sufficient evidence provided by the Chinese government to let analyzers prove that the bubble exists. Furthermore, there are also arguments that the government’s data collection most likely has holes in it: documenting and recording every one of the numerous transactions and huge populations of China is an impossible feat, especially when factoring in the underground market that may exist. Ultimately though, the existence of the bubble or not is irrelevant; the problems associated with the bubble are very real, and is a large wall for the coming generation, with many believing that even twenty or more years of saving won’t generate enough money for a house. It is the Chinese government’s duty to ensure that the problem is alleviated to help safeguard China’s economic growth.
