Could China’s Housing Boom Go Bust? | China Uncensored


Welcome back to China Uncensored. I’m Chris Chappell. China’s housing market. It’s grown up so fast. China’s real estate boom is now in its teenage years, and you know what that means: It’s constantly getting into trouble. China is building real estate faster than beavers build dams. That is, faster than beavers with chainsaws and backhoes build dams. Obscure Chinese cities you’ve probably never
heard of look like this. And this. And this. It’s because China’s manufacturing industry has expanded so quickly over the past few
decades. That’s pushed hundreds of millions of people to move from the countryside to the cities. Fun fact: More than 100 Chinese cities now have over a million people. Compare that to just 10 cities in the United
States with over a million. Sorry, San Francisco. You’re gonna need another 140,000 more tech
bros to make it to a million. And is it really worth it? Anyway, with so many Chinese people moving to the cities… “Big boom’ is the result.” That will never get old. The problem with big booms, though, is that they’re often followed by devastating
busts. In the US, housing prices saw a boom after 2000, when mortgage rates dropped. Then in 2008, there was a huge crash. Big cities have recovered, but most of the country hasn’t. So could this kind of crash happen in China? Some economists say it already has. “The bubble has broken. That’s it. They overbuilt.” Prices are falling in many top cities. But let state-run China Global Television
Network assure you, everything’s going to be just fine. “We’ve been talking about a bubble for
many, many years. But it continues to grow bigger and bigger. And it never seems to burst.” Yes, it never seems to burst. Which is surely proof that it never will burst. “Buy a beautiful volcano view home in Pompeii, the city where nothing ever goes wrong!” There are two main reasons for China’s real estate boom. One is that more people are living in cities
now than ever before in Chinese history. This chart shows that when former leader Deng
Xiaoping began his famous “Reform and Opening Up,” just 18% of people lived in cities. Now that figure is 57%. And current leader Xi Jinping hopes to reach 60% by 2020. But the problem is that a lot of the housing isn’t being bought by new homeowners— young families from the countryside starting a new life in the city. Those migrant workers are often renting cheap apartments on the outskirts of the city. Or in places like these underground bunkers
in Beijing. No, a lot of the new homes are being snapped up by China’s growing
class of nouveau riche— people who’ve recently earned a lot of money and are looking for places to invest. This is the deeper reason why real estate prices keep going up and up and
up. Chinese people have no other good places to invest their money. The Chinese bond market is weak. The Chinese stock markets can best be described as Las Vegas casinos but without the tasty
buffets. And the latest investment trend— Wealth Management Products— can be as opaque as a window painted black covered in a curtain in front of a brick wall. Plus, there are severe limits on how much
Chinese people can invest overseas. So where do you park a million dollars? Real estate. For example, Shanghai resident Miranda Chen, who was interviewed by Vice. “Ms. Chen and her husband have purchased two Shanghai apartments in the last few years. They’re now on their hunt for their third.” This is not what the Chinese government wants. As state-media says… “Authorities in China are sending a clear
message.” “The property markets should provide homes
for people, not investment vehicles for the rich.” So to cool this out-of-control housing boom, the government has implemented various restrictions. For example, to discourage people like Ms. Chen and her husband, last year Shanghai added a requirement that second-time buyers must make a 70% down payment instead of China’s typical 40%. But not to worry; they found a loophole. “If you were married, and already owned
a property, you would have to pay a huge down payment for the next one. So eventually it was recommended by our friends that we file for divorce legally.” Yes, they actually got divorced so they could buy an investment property with a smaller down payment. Shanghai has since closed that loophole. And they’ve also implemented other restrictions to cool off the investmentment market. Those include capping prices on certain new developments, and requiring buyers to use their real names instead of using shell companies to get around limits on second homes. Beijing has implemented similar restrictions to discourage second and third homes. In Beijing, the average two-bedroom, 1,000 square foot condo sells for a whopping $1.2 million dollars. In one downtown neighborhood, the average housing price has tripled since 2010. 23 other major cities have also added restrictions on home buying in the past year. All this is to say, for all the talk of China being a so-called free-market economy, the real estate market is being controlled
heavily by the government. And the government feels it has to control
it, because that’s the only way to solve the
problems it created by controlling the other markets, like stocks, foreign exchange, and other investment vehicles. Oh, and they’re also trying to get rid of
unsold real estate by encouraging migrant workers to buy instead of rent. The problem is that many still can’t afford
it, or just don’t want to. So will China’s real estate bubble burst? On one hand, it could burst any time. Prices are so outrageously high that the average housing unit in China cost 160 times the average person’s income. On the other hand, the government’s restrictions may cool the
market enough that the bubble doesn’t pop, but just settles down. On the other other hand, the Chinese government wants to keep prices
increasing, because that spurs construction, and construction means jobs and GDP growth— both necessary for the Communist Party to stay in power. On the other other other hand, real estate prices are getting so high, that it’s affecting the rest of the economy. If your monthly mortgage payment is 75% of your income, like with this guy… …well, then you’re not going to be able
to spend that much money on other stuff. That’s a problem when the Chinese government is depending on people buying more stuff to prop up the economy. Of course, the problem with real estate bubbles is that you can’t tell whether they’re
really bubbles until after they burst. So how about that volcano view property? It’s a great investment. So what do you think? Thanks for watching this episode of China
Uncensored. Once again I’m Chris Chappell. See you next time.

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