It’s no secret that housing prices are intensely inflated in China. But as the economy picks back up, people are beginning to pay attention and even worry about the consequences of a housing bubble similar to the one that’s ravished the U.S. economy.
Although China has downplayed the potential for a real estate crash, a lot of prominent economists around the world have raised questions. And when even Somali pirates are concerned over the price of real estate in your country, you know you’ve got a problem.
Real estate is a tangible asset that many Chinese see as a safer option than keeping your money in the bank, or under your mattress: as the country continues to grow, more new capital is being put into buying houses. However, whether these investments in high priced housing reflect the actual worth of the property is questionable. For instance, look at the city of Ordos, which boasts the second highest per-capita income in China (just behind Shanghai): however, it’s in the middle of Inner Mongolia, and no one has moved in.
And the problem is getting worse: already astronomical real estate prices rose during December at the fastest pace in seventeen months, forcing the Chinese government to cut commissions to realtors who secure new mortgages in an attempt to slow growth. To give you a clearer picture of the problem, Shanghai’s residential property prices have risen nearly 20% in the past year.
The social ramifications of high prices are fairly widespread: the average price to income ratio in Beijing is 27:1, five times higher than the world average, which means it’s almost impossible for an average citizen to buy a house without a massive loan. And as many young people won’t consider getting married without an apartment, housing prices are exerting a noticeable strain on society. Just take a look at Snail House, the soap opera in which characters cheat, deceive and struggle to obtain housing at any cost.
As things are, it seems impossible for China’s real estate bubble to continue like this. Luckily for those of us who prefer to rent, average rental prices are somewhere around 1/500th of the value of the property. And though you might lose face, if you really can’t afford the price of a house in Shanghai, you can always pitch a tent in the subway.
Photo from China Digital Times