Ren Zeping, chief economist at Soochow Securities, estimates that China’s housing market value reached RMB 321 trillion in 2018, or 3.6 times GDP. And according to Goldman Sachs, China’s residential and developer inventories totaled $52 trillion in 2019, or about RMB 337 trillion, in what the Wall Street Journal reported as an “epic bubble.
Ren Zeping, chief economist at Soochow Securities, published the “China Housing Market Value Report” in his Sina column on April 26.
Ren Zeping wrote that from 2000 to 2018, China’s housing market value increased from 23 trillion yuan to 321 trillion yuan, an average annual growth of 15.7%; of which, the increase in housing stock and the rise in housing prices contributed 11% and 89%, respectively. The market value of housing per capita increased from 18,000 yuan to 230,000 yuan, with an average annual growth of 15.2%, higher than the average annual growth of GDP per capita of 13.8%; the market value of housing per capita in urban areas increased from 45,000 yuan to 368,000 yuan, with an average annual growth of 11.1%. Housing has become the most important wealth of residential households and is highly correlated with financial institutions. The average annual growth rate of housing market value exceeded 13% of nominal GDP, so the ratio of housing market value to GDP increased from 233% to 356%.
According to Ren Zeping, compared to developed countries, China has a higher housing market value and ratio to GDP and market value of equity, debt and housing, but a low housing market value per capita. In terms of housing market value, China was $46.7 trillion in 2018, significantly larger than the $25.8 trillion in the United States, $10.3 trillion in Japan, and $28.0 trillion in the United Kingdom, France and Germany combined. In terms of the ratio of housing market value to GDP, China was 356% in 2018, higher than the 126% in the US, 208% in Japan, 238% in Germany, 320% in the UK, and 341% in France.
According to Ren Zeping, real estate is the hardest bubble in China. China’s real estate model was learned from Hong Kong, which in turn was learned from the UK, and both economies have high housing prices. The fundamental problem with China’s real estate is the mismatch between people and land and monetary overdraft; monetary overdraft has brought about serious asset price bubbles as well as financial risks.
According to the Wall Street Journal on July 20, 2020, under the headline “China faces epic property bubble conundrum: $52 trillion in size,” even the pandemic of the Chinese Communist Party virus has failed to stop the expanding property market in China, the world’s largest asset bubble.
According to Zhao Wenhao, a Shanghai-based agent at Lianjia, China’s real estate market began to rebound in March 2020 as many clients, worried about the devaluation of the yuan, poured more money into the property market as a safe-haven investment.
The Chinese property market bubble has now surpassed that of the U.S. property market in the first decade of this century, the report said. According to Goldman Sachs data, China’s residential and developer inventories totaled $52 trillion in 2019, twice the size of the U.S. residential market, and more than the entire U.S. bond market.
Chinese homebuyers believe that the government seems unwilling to let the property market fall. If housing prices do fall significantly, the primary source of wealth for most Chinese residents would be destroyed and could trigger social unrest. With this in mind, Chinese with enough money still keep buying homes, believing that real estate in major cities will remain the safest investment in China, regardless of overall economic conditions.
Chen Zhiyu, who works for a U.S. retail company, said real estate has kidnapped China’s economy, so the government is afraid to push for a big drop in prices.
However, over-investment in real estate is causing housing vacancies to rise. According to the latest data from the China Household Finance Survey, China’s urban housing vacancy rate was about 21 percent in 2017, which equates to 65 million urban housing units being vacant, a high rate relative to international standards. The housing vacancy rate for households with two suites reached 39.4%, while the vacancy rate for households with three or more homes was 48.2%.
In major cities such as Beijing, Shanghai, Shenzhen and Chengdu, the rental yield (the ratio of annual rental income from a home to the value of the home) is less than 2%, which is lower than what can be earned by purchasing Chinese government bonds.
Housing prices in some Chinese cities have reached levels that rival some of the most expensive locations in the world. The average house price in China in 2018 was equivalent to 9.3 times per capita income, compared with 8.4 times in San Francisco, according to data from the Chinese Academy of Social Sciences (CASS).
Residents of China’s cities and towns have pretty much bet everything on their homes, the report said. According to a report by China Guangfa Bank and the Southwest University of Finance and Economics, nearly 78 percent of China’s urban residents’ existing wealth is tied up in residential real estate, while in the United States, property accounts for 35 percent of household wealth, with more people investing in stocks and retirement funds.
Xu Xiaohua, a university lecturer from Tianjin, said most Chinese people would put their wealth in real estate during an economic downturn. The worse China’s economic situation is, the higher housing prices will rise in places like Shenzhen, he said.
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