China’s ponzi-like property market is eroding faith in the state
economist.com
economist.com
> Officials have long acknowledged that developers were selling far too many homes. About 70% of those sold since 2018 were purchased by people who already owned one, estimates JPMorgan. Restricting debt levels was supposed to force firms to adjust to actual demand.
What does this mean? 70% of homes bought are investment properties?
And China's real estate market is a ponzi scheme. Despite they heavily regulate it. Not the Western real estate market, less its financial markets, which crashed the entire world economy by basically scamming water-vapor backed derivatives.
The Economist does its job well.
In China's major cities, the price-to-income-ratio is around 40 or 50.
These are figures considered inconceiveable in Western countries, so its understandable why economists think that this is unsustainable.
To make matters worse, in China you only lease the property for 80 years, you don't own it.
So in summary you pay 50 years of a full income to get an 80 year lease on a property.
edit: after looking into it is seems they're slowly backing out of this idea that the land belongs collectively to the state after 80 years which perhaps partly explains the real estate fever as more people come to believe they'll own the land in perpetuity.
None of these are applicable: In any megapolis that people flock to, property prices skyrocket. This is not something unnatural or artificial. It would be inflated, yes, but it wouldnt be like what the US banking and investment sector did with subprime mortgages. It was an outright scam, and the real scam was not in the subprime lending - it was in the derivatives that were created based on those shaky assets.
There is no such situation in either China, in San Francisco, in Tokyo or any such place. People are cramming into various cities and regions, and causing prices to skyrocket.
> These are figures considered inconceiveable in Western countries
Of course. One 'tier 3' city in China is 10 million people. In the US, that would be a megapolis. In China its just tier 3. The scale is too different.
In New York City the price-to-income-ratio is still under 10. Chinese cities are severely overpriced.
Don't you think a shorter lease would have reduced the housing prices? 80 years means a lot of people value it as permanent, so no it doesn't make matters worse that it eventually expires, it makes matters worse because people treat it as if it doesn't.
On other hand the funding model of local governments in China is entirely different than in west. Main source of revenue has been selling land use rights for development.