Two sides to China's booming housing market

As the pandemic continues to cause economic chaos in most parts of the world, one sector that's already showing signs of recovery is real estate. Among the major winners is China, where property-related sales last year topped $2.6 trillion according to the National Bureau of Statistics there. After a slump in early 2020, the year closed up 8.7 percent on 2019.

New housing construction aimed at the high end of the market has been gathering pace near Changchun in the northeastern province of Jilin. Some 650 condominiums and houses are being built.

The price tags on the houses range between $920,000 and $1.8 million. Even the lower figure is over 180 times the average annual disposable income of urban residents of the province, which is around $5,000.

"I bought it with my own money, without a loan, after looking at the house just once." says Sun Decai, the owner of a local construction-related business. He snapped up a three-story house, complete with two basement floors, its own elevator, a bar counter, wine storage and even a maid's room.

Sun Decai
Sun Decai purchased a three-story house with two basement floors in Changchun, Jilin Province, after viewing it just once. "It wasn't a tough purchase," he says.

All the residential units are expected to be completed in March, and are already sold out. Ben Qingfeng, the chairman of Jilin Weifeng Industrial, a local developer involved in the project, points out that there are wealthy consumers with purchasing power in China's regional cities.

"There are not enough high-quality housing units in Changchun, and right across the country," he says. "I think that will create more business opportunities."

Housing bubble feared

But soaring prices in large urban areas are a source of concern for the Chinese government. New housing prices in Beijing last December were up 47.9 percent from 2015, while Shanghai saw them leap by 56 percent. Monetary easing measures designed to lift the economy helped pump massive funds into the real-estate market. That's seen as one of major factors behind the price surges.

Last December, authorities decided to tackle the rush to buy property for investment purposes at the Central Economic Work Conference, which outlines plans for China’s economic management. They introduced a cap on the ratio of housing and real-estate loans to total loans offered by domestic banks in January.

Stricter, more personal, measures are being taken in the largest cities. Shanghai officials have announced restrictions on home purchases for a period after people divorce. In Shanghai and Beijing, families face tougher borrowing requirements if they want to buy a second home or additional residential units. Local media say that has led many couples to divorce so they can make such investments as individuals, then remarry later.

Other side of the coin

However, it's not a nationwide picture of unfettered demand -- an oversupply of residential units is raising concerns in some places. Construction of large condominiums is booming in central Harbin in northeastern Heilongjiang Province. But local real-estate firms told NHK it's happening alongside falling prices and excess inventories.

The situation prompted the local government to step in last November in an attempt to encourage condo sales. It called for price reductions in consideration of market conditions. Tax revenues from real-estate sales are important to local governments, so such a notice is unusual.

The same oversupply of residential units is thought to be occurring in other regional cities too. A survey by private think tank Shanghai E-House Real Estate Research Institute shows the number of unsold new housing units in the city has reached its highest level since fall 2016.

CCP anniversary looming

Experts are divided on the outlook for China's real-estate market. Some say government regulations will ease overheating somewhat, while others warn that housing prices might tumble due to external shocks, such as an interest rate hike, that would put a brake on the economy.

The Chinese Communist Party will mark its 100th anniversary in July. Analysts project that President Xi Jinping and the leadership are unlikely to press ahead with any imminent policy shifts until at least the first half of this year. But if China prioritizes short-term growth, there's a real danger that it could trigger a serious bubble and threaten the economic revival.