A Shifting Market Stings Chinese Homeowners
January 12, 2012
While property privatization has helped fuel one of the fastest episodes of wealth creation in world history, new buyers in China often mortgage their futures to afford a home in the country's expanding cities. After reforms that were implemented 13 years ago allowing for private ownership of real estate, housing values in China's cities have skyrocketed, forcing buyers to scrape together unprecedented amounts of money to be able to afford a dwelling, says BusinessWeek.
However, the central government is now attempting to douse the housing market, for fear of a bubble. The story of newlywed Danny Deng is demonstrative of the negative effects the government's policies can have for those who are caught on the wrong side of the sector.
- Pooling his own and his parents' savings, a loan from his boss, and a 1.1-million Yuan ($172,000) mortgage, Deng bought his first apartment for himself and his new bride.
- According to SouFun Holdings, China's largest real estate Internet portal, Deng purchased his apartment for approximately 17,000 ($2,690) to 18,000 ($2,848) Yuan per square meter.
- Several weeks after the purchase, government policies forced the building's developer to lower his asking price by 4,000 ($600) Yuan per meter, meaning that Deng took a 20 percent loss on the value of his home overnight.
Deng was not alone when he took to the streets in protest of the government's market intervention that cost him a large portion of his life's savings -- hundreds of his neighbors joined him in outrage. Yet while the government recognizes the plight of the protesters and the damaging effects that its policies have had, it maintains that the need to address the housing bubble is nonetheless paramount.
- Urban residential values have risen 155 percent nationwide in the 13 years since the reforms were implemented.
- Prices in Shanghai, famous for the strong growth of its housing sector, almost quadrupled over the past decade.
- A potential bubble in China's housing market is particularly worrying for government officials because at least 12 percent of the country's gross domestic product is tied to the sector (this excludes related industries like building materials).
Source: "A Shifting Market Stings Chinese Homeowners," BusinessWeek, December 15, 2011.
Browse more articles on Economic Issues