There’s a serious risk of a property bubble in China, which has been driving property prices in the country to levels that were never seen before. If you’re planning to sell your property in China fast, timing is the key, as there’s no telling when the party might stop.
There’s been a sudden increase in the prices of properties for sale in China. What’s surprising about this is that this comes after a period when everyone was saying that the Chinese housing market had cooled down, as the government intervened to curb speculative activity in real estate.
But since early 2015, property prices have been on the rise. One of the reasons attributed to this is that the stock market crash in China has forced many to take their money out of stocks and invest in properties.
So the market has gone completely berserk. The highest increases in property prices are seen in the four biggest cities of Beijing, Shanghai, Tianjin and Chongqing. Other cities in China have also exhibited similar rise in prices.
There’s hence a strong belief that there’s a housing bubble in China. The average house price to average income ratio in China is 9.2, which is pretty high. This was the data in 2015. Prices have risen considerably since then.
In Shanghai, home prices have risen by 40% over the last 16 months; in Beijing, by 30% and in Tianjin by 21%. Chongqing hasn’t seen the same increase in property prices as the other three big cities.
What’s fuelling the price rise? It’s not just the macroeconomic policies such as lower interest rates that are at work here. Much of the blame can be attributed to local factors. There’s a bigger bubble in some cities than in others.
The local governments in China have done their bit to curb home prices. The municipality of Hangzhou, for example, now requires bidders at land auctions to pay the entire amount for the property within a month.
The municipality of Nanjing in Jiangsu Province now disallows residents from possessing more than two properties. This has been done to curb speculative interest in properties by developers.
China is ruled by a communist party, but not many know that it has the highest home-ownership ratio in the world. 90 percent of the households in China own a house, compared to 64 percent in the US.
This may be astonishing for many, but it isn’t really. Back in the 1990s, when the Chinese government embarked on a program of privatisation, they sold homes at steeply discounted prices to citizens.
So the real estate activity in China is driven by those who want to reside in their own homes, not so much by speculators. That’s why there’s a lot of hope yet that the property market will stabilize soon.
However, this does not rule out the speculative element as many Chinese individuals own multiple properties as any investment in property is considered safer than an equivalent investment in the stock market.