These days whenever I talk to my Chinese friends and relatives, even in third-tier cities like Weifang in Shandong, the topic somehow always shifts to property. Typical questions are “How much has your property appreciated since you bought it?”; “How many properties do you own?”; “Do you think that prices will continue to go up?”; and “Which overseas market is a good place to buy?”
It was through these conversations that I began to realise that almost all the Chinese people I know, including those fresh out of college, own at least one property. My peers typically own more than one – besides one to live in, they also tend to purchase one for each unmarried child.
This is truly a remarkable phenomenon considering that private ownership of real estate is a relatively new thing. After the Communists came to power in 1949 all urban land and real estate became state-owned until the 1990s when the government relaxed the rules amid the privatisation of state-owned assets.
I grew up in a 120-square feet room in a Soviet- style apartment block and I shared that room with my grandmother, parents and two siblings well into my teens. China’s Property Law – which codifies ownership – was not officially passed until 2007. Yet merely a decade later, 95.4% of the population owns a home, and 19.7% now own more than one home, according to data released in July by the Chinese Academy of Social Sciences. In comparison, home ownership in the US and UK stands at 63% or 64% of the population respectively and it is even lower in Germany – barely half of Germans own a property.
Why the insatiable appetite for real estate and the incredible purchasing power? I believe we can answer this question from a cultural, social and economic perspective.
China is historically an agrarian country – so treats land as the primary means for survival, security and prosperity. Also, Chinese parents see providing a property for their offspring as an obligation, which means a newly-married couple in urban China could be given two properties by their respective parents.
There is lack of trust in China’s fast-changing society. Money, power and fame are all subject to the whims of political, social and economic development. In comparison, purchasing a 70-year “ownership” lease on a property appears more stable and secure than anything else.
The economic benefits of buying properties have also proved exponential. Over the past decade alone, average property prices have more than doubled. This was partly due to an imbalance between high personal savings and the lack of other investment opportunities. Therefore, buying property has been an obvious investment and wealth preservation option. Property is seen as a safer and more lucrative bet than the casino-like stock market. Since China hasn’t experienced major property downturns in the past decade, few people think that prices will ever go down. The public doesn’t believe the government will allow the property bubble to burst either, as that could bring social instability.
But a Chinese saying goes “trees can never grow sky-high” so I suspect this upward trend in the property market won’t continue forever. And if there is any hiccups with real estate policy, such as the introduction of a US-style property tax, panic could soon replace complacency and create a vicious selling cycle.
More cautious people are already diversifying their property portfolio overseas. I learned from a couple of high-school friends that their relatively well-off buddies have been on overseas buying missions. Their top targets are less expensive urban areas in the US, such as Atlanta, Seattle and Houston. “A girlfriend of mine from Beijing bought a house in Atlanta this summer even though she has no plan to live there,” my friend said. “With major Chinese cities getting too expensive and putting more restrictions in buying property, she has no choice but to shift money overseas. With all her friends doing it, she didn’t want to be left behind.” Maybe I should warn my former CNN colleagues in Atlanta: buy a home now if you don’t already have one, because as a rule of thumb, wherever the Chinese start buying the price soon shoots up. So be warned.
A native Chinese who grew up in northeastern China, Mei attended an elite university in Beijing in the late 1980s and graduate school in the US in the early 1990s. If you’d like to ask her a question, send her an email at firstname.lastname@example.org
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