Property prices in first-tier cities on the mainland are much higher than in international metropolises such as New York. The picture shows the Beijing property market.
In a previous post, mainland economist Ren Zeping said that housing prices in first-tier cities in Beijing, Shanghai and Shenzhen have far surpassed those of world metropolises London and New York, with the per capita housing market value of the four first-tier cities reaching 1.13 million yuan (RMB, same below).
According to a report by China Economic Network on April 22, the team of Ren Zeping, chief economist of Dongwu Securities, estimated that China’s housing market value in 2019 is 339 trillion yuan, equivalent to 343% of GDP, of which the housing market value in first-tier, second-tier and third- and fourth-tier cities are 85, 107 and 148 trillion yuan, accounting for 25%, 31% and 44% of the national proportion, respectively, and the per capita housing market value is 113 37, 140,000 yuan respectively.
The article selects some representative global core cities such as New York and London for comparison and says that after taking into account the cost of ownership, the absolute and relative housing prices in China’s first-tier cities rank among the top in the world.
In terms of absolute house prices, the actual house prices in the central areas of Beijing, Shanghai and Shenzhen are estimated at 150,000, 143,000 and 141,000 yuan/sqm respectively, which exceeds New York’s 106,000 yuan/sqm, London’s 102,000 yuan/sqm and is second only to Hong Kong, China’s 214,000 yuan/sqm, in terms of the caliber of area used.
Despite the high property prices in mainland first-tier cities, the downtown rental return is less than 2.1%, lower than New York’s 4.8%, London’s 3.3% and Tokyo’s 2.7%.
In terms of house price to income ratio, in terms of area used, the house price to income ratio in downtown North, Guangzhou and Shenzhen are 67, 56, 37 and 52 respectively, higher than New York’s 11, London’s 14 and Tokyo’s 11; house price to income in peripheral areas are above 20, also higher than New York, London and Tokyo.
The article published by Sina Finance on October 4, 2020 by the mainland Ruyi Institute of Finance also shows that the relative house prices on the mainland are the highest in the world, and the house price to income ratio provided in the article is second only to Hong Kong before the correction and the highest in the world after the correction. The house price to income ratio in the central city of Beijing, Shanghai and Shenzhen is more than 40 times, that is, it takes more than forty years of family savings to buy an ordinary home in the central city.
According to the article, if the revised house price is used to calculate the house price to income ratio, it is even higher in Beijing, Shanghai and Shenzhen, reaching 66.64, 60.86 and 60.79 respectively, far surpassing Hong Kong and becoming the most affordable city in the world to buy a house.
The article also compares the house price per square meter with the annual rent to measure the return on investment achieved by renting out a house, which can be used to determine whether it is cost-effective to buy or rent a house. That is, the rent is more reflective of the actual demand for housing, and a much higher house price compared to the rent means that there is a financial component of speculation in the house price, which can be interpreted as a bubble.
The house price to rent ratio in the central and non-central areas of Beijing, Shanghai and Shenzhen are at the top, and the cost performance of renting is much higher. Without taking into account taxes or maintenance costs, the house price to rent ratios of Shenzhen, Beijing, Guangzhou and Shanghai central urban areas rank in the top four in the world with 81.82, 64.85, 63.27 and 58.07 respectively in the latest two months of core city house price to rent ratio data, while non-central urban areas also occupy the top four positions. The internationally accepted threshold is 25, and exceeding the threshold value indicates that the property investment value in the area becomes smaller and renting is more economical than buying. And renting is the actual demand for housing, some of those who buy houses are speculative demand, the high price to rent ratio indicates that speculative demand exceeds the actual demand for housing, there is a certain bubble.
After Ren Zeping’s article was published, it sparked great concern among mainland netizens, with thousands of people participating in the message.
A Guangzhou netizen said, “The property prices in the four first-tier cities combined can buy all of Europe plus Japan in the United States.” Anhui netizen “have attitude netizen 0gogeB” said: “economically has exceeded the world.”
“Mars netizens” said: “should be a problematic social phenomenon.”
Wuhan netizen “comment the most cutting-edge” said: in the face of such high housing prices “young people sooner or later have a day of collapse.”
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