Li Nan has real estate fever. A 27-year-old steel trader at state-owned China Minmetals Corp, Li lives with his parents in a cramped 700-square-foot apartment in west Beijing.
Li is looking for a two-bedroomed apartment, hopefully in the Dongcheng quarter near the city centre. In the past 12 months, such apartments have doubled or tripled in price to about US$400 per square foot.
“This year, they’ll be even higher,” says Li.
Millions of Chinese are pursuing property with a zeal once typical of house-happy Americans.
In Shanghai, prices for high-end real estate were up 54 per cent through September to US$500 per square foot.
In November alone, housing prices in 70 major cities rose 5.7 per cent, while housing starts nationwide soared 194 per cent.
The real estate rush is fuelling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets and local governments.
“Once the bubble pops, our economic growth will stop,” warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences’ Finance Research Centre. On Sunday, Premier Wen Jiabao said “property prices have risen too quickly”. He pledged a crackdown on speculators.
The China bubble is not easy to understand but one thing is clear: the bubble is inflating at the rich end, while little low-cost housing gets built for middle and low-income Chinese.
In Beijing’s Chaoyang district, a typical 1,000 sqft apartment costs about 80 times the average annual income of residents.
Koyo Ozeki, an analyst at United States investment manager Pimco, estimates only 10 per cent of residential sales on the mainland are for the mass market.
Chinese consumers, fearing inflation will return and outstrip the tiny interest they earn on their savings, have pursued property ever more aggressively. Companies in the chemical, steel, textile and shoe industries have started up property divisions, too: the chance of a quick return is much higher than in their primary business.
“When you sit down with a table of businessmen, the story is usually how they got lucky from a piece of land,” says independent economist Andy Xie. “No one talks about their factories making money these days.”
The central government now faces two dangers. One is the anger of ordinary Chinese. In a recent survey by the People’s Bank of China, two-thirds of respondents said real estate prices were too high.
The debate has become even more charged following injuries and deaths related to real estate. A woman from Chengdu committed suicide by torching herself when her former husband’s three-storey factory and attached living space were demolished to make way for a road. A man in Beijing suffered severe burns in a similar protest over his home.
The second danger is that Beijing will try, and fail, to let the air out of the bubble. Pulling off a soft landing means slowly calming the markets, stabilising prices and building more affordable housing.
To discourage speculation, the State Council is extending, from two years to five, the period during which a tax is levied on the resale of apartments. Tighter rules on mortgages may follow. Beijing also plans to build apartments for 15 million poor families.
The government is reluctant to crack down too hard because construction, steel, cement, furniture and other sectors are directly tied to growth in real estate.
In November, for example, retail sales of furniture and construction materials jumped more than 40 per cent. At the December central economic work conference, officials said real estate would continue to be a key driver of growth.
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Mainland property bubble expands
Bloomberg in Beijing
01 December 2010
Li Nan has real estate fever. A 27-year-old steel trader at state-owned China Minmetals Corp, Li lives with his parents in a cramped 700-square-foot apartment in west Beijing.
Li is looking for a two-bedroomed apartment, hopefully in the Dongcheng quarter near the city centre. In the past 12 months, such apartments have doubled or tripled in price to about US$400 per square foot.
“This year, they’ll be even higher,” says Li.
Millions of Chinese are pursuing property with a zeal once typical of house-happy Americans.
In Shanghai, prices for high-end real estate were up 54 per cent through September to US$500 per square foot.
In November alone, housing prices in 70 major cities rose 5.7 per cent, while housing starts nationwide soared 194 per cent.
The real estate rush is fuelling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets and local governments.
“Once the bubble pops, our economic growth will stop,” warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences’ Finance Research Centre. On Sunday, Premier Wen Jiabao said “property prices have risen too quickly”. He pledged a crackdown on speculators.
The China bubble is not easy to understand but one thing is clear: the bubble is inflating at the rich end, while little low-cost housing gets built for middle and low-income Chinese.
In Beijing’s Chaoyang district, a typical 1,000 sqft apartment costs about 80 times the average annual income of residents.
Koyo Ozeki, an analyst at United States investment manager Pimco, estimates only 10 per cent of residential sales on the mainland are for the mass market.
Chinese consumers, fearing inflation will return and outstrip the tiny interest they earn on their savings, have pursued property ever more aggressively. Companies in the chemical, steel, textile and shoe industries have started up property divisions, too: the chance of a quick return is much higher than in their primary business.
“When you sit down with a table of businessmen, the story is usually how they got lucky from a piece of land,” says independent economist Andy Xie. “No one talks about their factories making money these days.”
The central government now faces two dangers. One is the anger of ordinary Chinese. In a recent survey by the People’s Bank of China, two-thirds of respondents said real estate prices were too high.
The debate has become even more charged following injuries and deaths related to real estate. A woman from Chengdu committed suicide by torching herself when her former husband’s three-storey factory and attached living space were demolished to make way for a road. A man in Beijing suffered severe burns in a similar protest over his home.
The second danger is that Beijing will try, and fail, to let the air out of the bubble. Pulling off a soft landing means slowly calming the markets, stabilising prices and building more affordable housing.
To discourage speculation, the State Council is extending, from two years to five, the period during which a tax is levied on the resale of apartments. Tighter rules on mortgages may follow. Beijing also plans to build apartments for 15 million poor families.
The government is reluctant to crack down too hard because construction, steel, cement, furniture and other sectors are directly tied to growth in real estate.
In November, for example, retail sales of furniture and construction materials jumped more than 40 per cent. At the December central economic work conference, officials said real estate would continue to be a key driver of growth.
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