China’s housing market has a history that’s short by global standards, since private homeownership only began in 1998. But what a two decades it’s been. Home prices have skyrocketed, creating a mentality that real estate is a one-way bet. The government’s sporadic bouts of tightening limits on property sales, then easing them, has often exacerbated the frenzy by prompting speculators to second-guess policy changes. Now, officials are escalating efforts to steady the market, with President Xi Jinping pinning his name on reining in speculation.
1. Is real estate still seen as a one-way bet?
To a large degree, yes. Except for a brief dip during the global financial crisis, home prices have steadily (and sometimes precipitously) risen, driven by rapid economic growth and urbanization. Prices started to soar early in the 2000s, and the central government began taking action to cool the market in 2010. But by the end of 2014, signs of a slowing economy and a glut of unsold homes prompted a shift in gears, with a stimulus package that included six interest-rate cuts in a year and the easing of some down-payment requirements. A stock-market meltdown in 2015 only heightened the appeal of investing in real estate, which in China often means buying apartments.
2. How crazy has it gotten?
As an example, prices in the southern city of Shenzhen, home to 12 million people, surged by 150 percent from 2014 to 2016, forcing local officials to take measures to calm the situation. Those don’t always work: To get around bans on buying second homes in some cities, couples resorted to tactics such as fake divorces, so both spouses could qualify to buy homes. Police in the financial hub of Shanghai had to restore order in 2016 when lines of people thronged real estate transaction centers and clogged traffic. Last year, after the government said it would create a special economic zone in Hebei province -- similar to Shenzhen and Shanghai’s Pudong -- hordes of prospective buyers flocked to the region, with some camping outside property agent offices overnight. That led to a temporary freeze on all property sales in the zone.
3. What’s been the government’s approach?
Back in 2010, then-Premier Wen Jiabao talked of devising a long-term “mechanism” for housing, meaning a nationwide package of policies to curb speculation and stabilize prices. But his words -- at the annual global business gathering in Davos -- were followed by limited action, including the construction of some affordable housing for the poor. Without that grand “mechanism,” there’s been a patchwork of ad hoc policies, mostly local restrictions on buying, selling and lending.
4. Has China stopped trying to cool the market?
No. Xi repeatedly reminds the Chinese people that housing is for living in, not speculation, and there are signs that change is afoot. There’s a nationwide push for construction of more rental housing and, in Beijing, officials are experimenting with “joint-ownership housing” -- homes that are co-owned by individuals and the state. Officials have also vowed to let land owned by rural collectives be developed by builders -- if it’s to be used for rental housing.
5. Is there any downside to more rental housing?
In some quarters, yes. Rentals are a potentially less lucrative business for developers. And local governments -- also being required to allocate more land for rentals -- face a future with potentially less revenue from land sales. Some analysts wonder how tenable any losses of revenue would be for some local governments, putting a question mark over the whole project.
6. Will the rental push cool prices?
That’s anyone’s guess. Some analysts expect only a moderate impact, while others see prices being checked as the shabby low-end rental stock is upgraded. CLSA Ltd.’s Nicole Wong says cheap rental housing will only add to price pressure by allowing young professionals to save faster for home purchases. Others see price swings easing as some renters delay buying. The slated rental supply could spur about 30 percent of prospective buyers in Shanghai to defer purchases in the next five years and 10 percent in Beijing, according to Orient Securities Co. property analyst Zhu Jin. Beijing’s joint-ownership project may prompt another 20 percent to hold off from buying.
7. What might be the next steps?
Possibly a national property tax. This is seen by some analysts as both the most significant measure for cooling speculation and the most risky, since it has the potential to upend the perennially positive market sentiment. However, given the number of steps required to introduce such a measure, including legislation, don’t expect such a tax to be rolled out for years. Other measures may include a wider trial of joint-ownership housing, mimicking Singapore’s approach of providing cheap starter homes. The annual supply of such homes in Beijing will be equivalent to about half the city’s new-home sales, according to China Securities Co.’s head of property research Chen Shen.
The Reference Shelf
- Homes are for living in, not speculation: Xi Jinping’s mantra.
- The push for rentals.
- QuickTake explainers on China’s meddling in markets, war on online loans and concern about financial risk.
- Beijing’s population dropped for the first time in 17 years.
- Chinese leaders see 2018 as a year of "critical battles" with a cooling economy.
— With assistance by Paul Panckhurst, Emma Dong, and Laurence Arnold