In its transition from a command to a market economy, China has seen fluctuations in various markets. The price of medicine, hospitalization, education, food, public transport, and housing have all been affected by both market and non-market (i.e. government) forces.
The Chinese housing market, similar to housing markets in other nations over the past 10 years, entered a bubble phase where easy credit, excess cash, and stimulatory government policies led to rising housing prices that would seemingly never fall.
The worldwide property market bubble collapse in 2008-2009 has also cooled down China’s property prices, but factors unique to China continue to put intense pressure on the younger Chinese generation when it comes to purchasing property.
High Costs, Low Incomes
While China’s economy recently surpassed Japan’s in terms of overall GDP, Chinese per capita still hovers at around USD $3000 per year. While some white-collar workers in large cities make wages comparable to those in developed nations (e.g. USD $50,000 per year), the overwhelming majority of urban Chinese workers earn the equivalent of only a few thousand U.S. dollars per annum.
Chinese housing prices, however, hover at international price levels. A one bedroom, one bath, 55 square meter (180 square feet) condo-style unit in Beijing’s Chaoyang District sells for 390,000 RMB (USD $57, 000), or 7090 RMB (USD $1044) per square meter. For married couples with one child and live-in in-laws, a two bedroom, one bath, 100 square meter (328 square feet) condo-style unit in Chaoyang District sells for 1, 950, 000 RMB (USD $ 287,000), or 19,000 RMB (USD $2800) per square meter.
Beijing is one of the highest-priced property markets in China, but other cities have also experienced this exponential growth in property prices to international levels.
In the face of rising prices, many young couples looking to marry are faced with intense pressure surrounding when to buy, where to buy, how to finance the purchase, and the potential for falling prices (leading to underwater properties).
Some young women (most famously in Shanghai) even ask potential boyfriends how big (i.e. how many square meters) of a condo they own (or plan to purchase), and where the condo is located. Housing questions come after questions about how much the man earns and what brand of car he drives. Potential male suitors who don’t meet the mark are cast aside, leading many men to marry girls with lower expectations from smaller surrounding towns.
Young couples who do marry and buy a condo often refer to themselves as slaves to their property (Mandarin: fang nu). While Chinese savings rates are high and incomes are rising, a young couple making the equivalent of USD $5000 a year has to wonder just how long it will take for them to pay off that USD $287,000 loan on their 100 square meter flat in Beijing’s Chaoyang District.
In many cases, parents’ savings are given as gifts to be used as a down payment on a young couple’s property, reducing the burden young couples have to bear.
High Chinese property costs that are not in line with the salaries of young Chinese professionals have led to yet another abnormality in China’s transition from a planned to a market economy.
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Sources: Century21 China, Bloomberg