Image via dcmaster
The Chinese housing bubble has graced the pages of Shanghaiist before, with its absurdly inflated real estate prices and wild sales margins. The bubble poses serious consequences for the nation’s economy, and fears of its eventual pop have forced the government to scramble for solutions to cool down the out-of-control market. Wages haven’t increased proportionally with the rising real estate prices (Shanghai saw a 150 percent increase in real estate prices in the last decade alone), leaving the majority of Chinese citizens facing insurmountable hardships when purchasing a home.
A new story on NPR highlights the struggle of the Zhuo Yang, a 27 year old Shanghai resident. Zhuo, along with countless others, is hitting a dead-end while trying to find affordable housing in the world’s largest city. Marital and career pressures are weighing down on the young man as he attempts to find an apartment that matches both his needs and his income.
Zhuo tells of his battle with the city’s wild real estate market;
Every weekend, I rise at 7 a.m. to get on the subway to hunt for apartments. The cheapest two-bedroom homes in the suburbs of Shanghai cost $200,000 or more, which would take me more than 12 years to pay off — if I don’t spend a dime of what I make.
People in the West tend to think the Chinese are taking over the world; the reality is young people here struggle to make ends meet. Putting food on the table and having a shelter are still their biggest concerns. I’m 27, with a graduate degree in journalism and a good job in my field, and I’m worried about these basics.
Zhuo ultimately did find an apartment, but only after forking out $208,000 for a rough fixer-upper. The apartment is crudely unfinished, with uneven concrete floors, no appliances to cook his food, and no toilet. Zhuo predicts that it will cost a further $40,000 to transform his “skeleton of a living space” into a reasonable home which, according to his calculations, will leave little more than $100 left each month after paying for food and mortgage. Obtaining an apartment at all was a small victory, but the struggle is far from over.
Zhuo may be able to pay off his housing debt by the time he is a grandfather (it bears repeating, this is an employed man with a graduate degree). Statistics show that it takes at least 28 years for most families in Shanghai to pay off the price of their home, creating a demographic the Chinese media is calling “fang nu” which translates as “housing slave”.
Sherry Sheng is a Shanghai police woman and, unfortunately, a quintessential “housing slave.” Sheng will have to devote 70 percent of her annual salary to her mortgage to stay afloat.The Financial Post reported how it was possible for Sheng to purchase her home:
Sheng was able to buy her 50-square-meter apartment after borrowing a combined 770,000 yuan through a 20-year mortgage from Agricultural Bank of China Ltd. and a 15-year loan from the local housing providence fund. Her parents helped with the 30% down payment. She will repay about 4,000 yuan a month for the home, a one-hour subway ride from central Shanghai’s historic Bund that cost 16 times her annual salary, based on the apartment price and her income.
The stories of Zhuo Yang and Sherry Sheng paint a picture of crushing debt and financial irresponsibility, the kind of symptoms seen by American homeowners building up to the 2008 financial crisis. There are, however, significant differences between the Chinese and American bubbles.
Bloomberg Business Week reports that “Chinese buyers typically make large down payments and so are less likely to risk foreclosure” and that “At China Construction Bank, the nation’s biggest housing lender, the bad-loan ratio on personal mortgages stood at 0.2 percent as of June 30, unchanged from the end of 2011.” Despite the struggles of people like Sherry Sheng and Zhuo Yang, China’s housing market has been able sustain itself, and consistently disproves predictions of its popping.
With their financial prudence and also the sensible behavior by Chinese banks, many more Chinese will one day own a home, and will—hopefully—be able to do so without dragging the world into economic recession.