Those last years, Chinese real estate suffers from fiscal instability.

Real estate crisis in China

The link between the Chinese real estate and China’s economy

As anywhere in the world, real estate sector is a driving forces of the country’s economy. In China in the last years, the number of houses sold and/or bought across the country has declined. And this figure is even more important in the big cities.

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Shanghai is one of those big cities. According to experts, prices in this period have slightly decreased and we are now in a housing crisis. Plus, the demande for houses has been down even more than the demand for office blocks or apartment.

A real estate market bubble

From 2014, while the housing prices have fallen, experts agree that we were yet to get to the burst, the prices of houses and rent prices might stabilize very soon, but this is not a guarantee. Today, in 2015, one year after, anything change but hopefully the bubble did not burst yet.

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For those who would like to make a gain are advised to buy when the prices are low and either retain the product or sell it when the prices start rising.

Unlike the government, the players in the industry are not worried about the falling prices. The apartment prices in the city are still high but the volume of transactions dropped from 33% in the first half of 2014. Other parts of the country experienced a drop of transaction at a rate of 19%.

Government attempts to revive the market…with success?

Those last years, in order to fight real estate speculation and bubble, the Chinese government decided to set up different restrictive mesures to buy real estate property.

A few statistics

To revive the Chinese real estate market, the Chinese central bank (PBOC) announced that it will lower the required minimum input to buy a second home. The Chinese people who would like to get a second of a third property in addition with their main one, will have to paid during the purchase at least 40% of the selling price. Previously, this level was fixed between 60% and 70% of the selling price, according to the Official Agency of the New China.

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The Chinese real estate which represented until 25% of the GDP according to some expert is now suffering. According to the China Index Academy Office, the average price of new housing in 100 big cities dropped again in February with a hike of 0.24% beside January. Also, the PBOC “want to support the home buyers’ plan and to help the housing demand to boost.”

One charge deleted

The mesures adopted 4 years ago to limit the real estate fall are now undone to stimulate the economy. The government also announced that it will deleted a special charge on the housing sales resold within the 2 years of the initial purchase.

Those changes “will loosen the financial restraints which households were facing and help those who want to change their living arrangements and to buy best apartments,” commented analysts of the ANZ Bank.

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“Transaction volume will inflate, which will help to reduce unsold apartments overabundance stocks,” they noticed. The Chinese GDP growth went down to 2.4% in 2014, the lowest since 25 years, in a context of shrinkage of the manufacturing sector.

In the hope to stimulate the activity, the PBOC lower its interest rates two times since November and reduce the mandatory reserves ratio imposed by banks, in order to encourage them to lend more. The real estate such as the building industry are also crucial for the local governments already too much indebted, to whose land sales represent the main source of funding. 

Rich Chinese people like foreign real estate

According to a study of Sotheby’s International Reality, from rich Chinese’s point of view about investment, localization is the main reason of Chinese purchase, it is even the priority for 82% of them. However, the size of the property matters only for 46% of them. 37% say they are willing to buy their next property in Asia whereas Europe and North America seduce only 28% and 25% of them.

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Be careful, before buying, Chinese people request informations, they read specialized magazines, they find informations on social networks or they go on Baidu to get the informations needed to understand.

Those last years, Chinese real estate dropped. It is now at a point of stagnation since 2014. Nevertheless, Chinese real estate crisis is really important. If the bubble explodes, it would have a huge impact on the whole monetary system of the world. Nowadays, most of regions in China have way too many properties. From now on, how the Chinese government will escape from its real estate crisis and the bubble risks ?

Further reading