Beijing (AsiaNews) - " Stabilising house prices is an essential task for every level of government in China" Premier Wen Jiabao, said on 13th September at the World Economic Forum in Tianjin, China, calling on all governments to address without delay the serious problem of housing bubble. Statistics show that there are at least 64 million uninhabited apartments for 6 months or more in the country.
Analysts observe that based on the average Chinese family of 3 (parents with a child), to 64 million apartment are the equivalent to homes for 192 million people. For years Chinese have been investing savings in property, seen as a safe haven from inflation. In fact bank deposits guarantee interest of only 2.25%, lower than inflation, which for months has been at more than 3%. The Chinese stock market is volatile and has seen sharp highs and lows in recent months, while the Shanghai stock market has yielded poor results. In 2009 property prices in major cities saw increases of up to 50%.
Real estate investments are also favoured by cheap labour and land and low interest bank loans to both builders and buyers. Moreover Beijing has long realized that increases in property values are fictitious, supported by a speculation based solely on the demand to buy as a safe haven for investment but not as the result of effective housing demand market. For this the government has tried to "cool down" real estate prices, by imposing more taxes and less incentives to buy.
In the Communist Party of China’s paper People's Daily, economist Yi Xianrong warns that "many investors rely on a constant increase in prices in the housing market, but the market is overheated. "This is a serious threat to the Chinese economy."
Wen agrees and in Tianjin said that "the issue is not just a housing problem but also an economic issue of the standard of living of the population that reflects on social stability”.
Among other things, the Chinese do not like to rent apartments, preferring to live in purchased property. The fear is that if prices are kept artificially high by speculation in the near future the surplus of homes compared to the actual housing needs will cause a collapse in prices. This could have a possible knock-on effect for the millions of middle-class families whose savings are in property.
Frank Yao, a Neuberger Berman expert, said that "when property prices become less affordable, investors could collapse": these investors are mostly households that can not afford to lose everything or to plan in the long term, but who need to be able dispose of their savings if necessary.
For this reason, many economists say the problem is not "if" the housing market is a bubble, but "when" it will explode. Some believe that this time may not too far off.
But the risk is that in the meantime the bubble is expanding. Shen Minggao, an economist for Greater China, said that "two figures show that the bubble is growing. More and more people are turning to banks for [funding for] real estate purchases and real estate investments are growing faster".
The analyst Lilian Liu in FinanceAsia, estimates that in 2009 bank loans have provided about 50% of 4 thousand billion Yuan (about 463 billion) invested in purchases of property, compared with 20% in 2007. Also in 2009, real estate investments were 10% of gross domestic product, compared with 8% in 2007. But recent data show that in 2010 these investments are even greater. As a result of government measures, sales decreased by approximately 60% in a sample of 14 major cities and for the 3rd quarter of 2010 experts predict a fall in prices, even by 20-30% in some cities. This adjustment does not cause concern, because investors have seen their invested capital greatly increase in value and can buffer such a loss. Beijing appears to be attempting to cool the market, waiting for property prices to adjust to the actual economic value. Meanwhile, the central government plans to build 5.8 million new affordable homes to meet the housing needs of the poor. But what exactly local governments will do remains unknown. For years the political fortunes of governments depended on the economic success of their region. A policy of containing real estate prices means a contraction in GDP, on which about 25% of real estate is believed to depend.
"I see no reason for local governments to build these houses - says Yao - This will not help their political careers or increase the GDP of the area."