Positive side of rising home prices
2016-09-23, Ed Zhang

For the last few weeks, news about China’s macroeconomic situation has continued to be about the urban housing market. 

Technically, this is good news — meaning that the country’s inventory of unsold flats, a main cause of the economy’s low efficiency and debt build-up, has become a less threatening problem. 

People are lining up for housing units in the largest cities — in Beijing, Shanghai, Shenzhen, Nanjing and Hangzhou — pushing up their average price levels to a historical high. 

In August, of the 70 largest cities on the Chinese mainland, in only six did the housing price go down or remain the same. The remaining 64 reported a price increase from the same period last year, with Shanghai reporting the highest rise of 5.6 percent. 

In the meantime, secondhand homes witnessed price rises in 57 cities, with Beijing reporting a 3.9 percent increase year-on-year, Hangzhou 2.8 percent and Zhengzhou 4.5 percent. 

In Beijing and Shanghai, the average housing price has been close to 50,000 yuan ($7,500) per square meter. Of all the provincial capitals, Nanjing, in East China’s Jiangsu province, has exceeded 20,000 yuan. 

However, people will not be happy when prices increase so rapidly. 

In such a scenario, both those who have the courage to buy new flats and those who do not are worried. They do not know if the market is sustainable (and with the astonishing rate of the price rise, many say it cannot continue) and which areas will experience a slump. 

There are people who wonder how a powerful government can let the housing market crash in its capital city without intervening. This is only a hypothetical argument, however. 

Officials and economists are not much help either. In the last few years, they have been unable to give a plausible piece of advice as to how long, and how high, the housing prices can continue to rise in China’s key cities. 

For a country that still sees itself as a developing economy, how can the housing price in some mainland cities be higher than most parts of the United States and nearly catch up with the levels seen in Hong Kong? 

This is not a question that people can comfortably live with. 

Without knowing how much higher Beijing and Shanghai’s housing prices can go, and what the possible solution will be, how can anyone possibly calculate — if anything goes wrong — the eventual value of their investments? 

Alternately, how can they claim to understand the Chinese economy? 

In fact, in all countries, once the economy begins to grow, and as industrial development begins to attract increasing numbers of people into the cities, real estate development then becomes the single most important factor that drives the growth of the overall economy. 

There are no exceptions. 

Where the demand for real estate development dwindles, economic growth (and growth potential) tends to be weak in general. 

So, for the sake of maintaining the economy’s overall growth momentum, it should not be seen as a bad thing if China experiences some real estate price rises, especially in a few of its major cities. 

Firstly, China’s malaise is the fact that the housing price rises too much and too quickly in just a small number of key cities. But, if all those price rises did not continue, the country would face a more disastrous economic situation.

Secondly, when people talk about China’s real estate bubble, they should know that a considerable amount of the nation’s housing investment has already been wiped out. 

Unfortunately, it is the people in rural areas, including the millions of migrant workers, who have made the biggest sacrifices, as all the new houses they built in their home villages are being wasted because many migrant workers will settle down in the cities where they work and will not live in their farm houses. 

In the last decade, the migrants’ total investment in private home building would be worth at least 2 trillion yuan. These home owners can recover very little added value from such a huge investment. 

Thus, the underutilization of so many farm houses has contributed indirectly to a balance between supply and demand in the overall housing market. 

Most small cities in interior regions will also have problems in sustaining local housing prices, especially those reporting a net loss in work-age population. 

Thirdly, the present internal migration pattern — in which young and capable workers move to the major coastal cities and their nearby satellites — is unlikely to change for the next half century. 

If the housing price is turning prohibitively high in those urban centers, the government can do many things to help the residents of these areas — more easily than helping the residents of all the villages in the country — by offering subsidized public services and diverse other choices. 

In the process, there is little doubt that housing prices in Beijing, Shanghai and Shenzhen will one day rise to a level that is comparable to Hong Kong. 

In this situation, competition between the real estate sectors in the satellite towns of these major cities will help China’s young workers find more affordable flats. 


The author is an editor-at-large of China Daily. Contact the writer at

ASIA WEEKLY is a publication by China Daily
Contact us at +852-25185111
Copyright by China Daily, All rights reserved