Chinese housing sector continues to sizzle


Prices for new homes in first-tier Chinese cities climbed over 15% in December, highlighting the failure of local property restrictions to cool the sector.

Valuations jumped 20% on year in the southern business hubs of Guangzhou and Shenzhen, 18% in Shanghai and 16% in Beijing.

Prices increased in 69 of the 70 cities tracked by the government.

Meanwhile, Shanghai has set a growth target of 7.5% for this year vs an expansion of 7.7% in 2013, with the city looking to its new free-trade zone to help boost its economy. Shanghai's goal is the same as last year, although at least nine Chinese provinces have cut their targets.

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Comments (3)
  • Mike Holt
    , contributor
    Comments (1863) | Send Message
     
    I never thought I'd see the day when imposing a tax could serve as the solution to anything, but introducing property taxes in China might be the solution to their housing bubble. It sure beats the credit crisis that could follow if the Chinese government is not successful in deflating this bubble, and the many other bubbles that exist in China, through other means. As it stands, many properties are vacant, and this has become so prevalent that speculators have lost sight of the economic fundamentals that should govern market prices, such as whether income levels are high enough to support the payments that would be required by those who would actually seek to occupy these homes. Once this is deemed irrelevant because vacancy becomes the norm, thanks in part to the absence of a property tax that would impose a more meaningful carrying cost, then its easy for speculators to justify paying ridiculously higher and higher prices for these properties. They simply shrug off concerns about a bubble by foolishly attempting to justify the amounts they have paid because "the properties are held for investment purposes." Like all bubbles, this all seems so profound when the music is still playing, and so foolish when it stops, which it will--soon, if it hasn't begun to subside already.
    19 Jan 2014, 11:25 AM Reply Like
  • divinecomedy
    , contributor
    Comments (465) | Send Message
     
    There's no need to impose a tax. A war with Japan should resolve the issue. The bubble will burst and they can blame Japan. Easy as pie.
    19 Jan 2014, 12:55 PM Reply Like
  • canb888
    , contributor
    Comments (670) | Send Message
     
    Most of the steps taken by the government is to reduce supply, for example by limiting available land to build and restricting bank lending to builders, etc. Reducing supply while demand is high is the wrong policy. Property tax would be good but enforcing it would be difficult as people do not understand why they have to pay a new tax that never existed before. So is selective capital gain tax difficult to enforce as it could be easily circumvented. Affordability is not really an issue in most except the top tier cities. I know people who would trade up and buy condo's which would require more than their 25 years' family income to pay for. In one such case, they sold their previous condo for about USD900k (USD equivalent in Rmb, no mortgage for the past 10 years as they bought it for about USD90k 15 years ago) + sold another smaller condo for about USD400k that they had bought 10 years ago for USD100k as an investment and rented out + their savings for the past years since they paid off both mortgages, thus they paid cash for a USD1.5 million condo with a river view in Shanghai, small place that would be considered grossly overpriced by most standards in US cities except in places like Manhattan. Many buyers are in this situation, thus demand is just too high for the "bubble" to burst. Even my ex-driver has three rental units in lower class buildings (I had advised him to buy as many as he could when prices were about Rmb50k or about USD6k as exchange rates were about 8.8 to one, that was 20 years ago when I first went to Shanghai and the property market collapsed to 50% of the 1992 prices - many "China experts" don't know property price did collapse once in Shanghai in 1993 with actually many empty units worst than today and only started to recover in 1996 making up all the loses by 1997). Today, those units are worth about Rmb 1.35 million each at exchange rate of 6.05 to one USD = $223k each. He could sell the three plus his own residence and buy an expensive unit in the new buildings if he wanted to. He may sell to help the down payment when it is time for his only child to marry and buy. One cannot measure affordability by new University graduate's salary or average salary of a city. In summary, people tend to grossly underestimate demand. The "bublish prices" are a result of demand and supply, at least for now. Prices are no longer cheap and I would not advise any driver to go out and buy as many as they could afford since they may not be able to afford another new unit today with their salary (driver's salaries have actually gone up much less than other jobs as driving license were rare in those days but not today). And those talk about "bubble bursting" has been wrong for almost 10 years while prices have moved up several times (several hundred %) like in the real life examples I quoted above.
    19 Jan 2014, 01:58 PM Reply Like
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