Over Winter Break, I went back to China where I spent my first 16 years. Though many perspectives on China are circulated, after talking with Chinese citizens and government officials, I would like to offer my personal observation and reflection on one pressing issue: housing.
The continuing housing slide in the United States and Europe has not decelerated the skyrocketing prices of housing in China. A close friend of mine who works for a major Chinese property developer (Jindi) told me that in cities such as Beijing and Shanghai, apartments are sold at 50,000-60,000 RMB per square meter ($8,000 per 10.76 square foot; $1 = RMB 6.8). This means that a studio apartment with an area of 860 square feet would be offered at prices as high as $600,000 (3-4 million RMB), on par with real estate costs in New York City.
In contrast, most members of the Chinese middle class earn a few thousand Yuan per month. Consequently, more and more people are having trouble purchasing homes. During my stay in China this past winter, I hung out and talked with many young Chinese, primarily college graduates who are very anxious about their future plans. This anxiety is grounded in the uncertain fate those college students face. About 50 percent of college-educated individuals in China are unemployed. For those lucky few who are employed, their average salaries range from only several hundred to 2000 RMB.
The combination of rapidly rising housing prices and low salaries mean that most Chinese citizens, especially the younger ones, are virtually excluded from buying their own homes or renting apartments in urban areas with their personal income. One of the primary reasons why housing prices keep increasing faster than ever is that many rich people are buying multiple homes. The buying spree started as a way of showing off individual wealth. But overtime, the rich started to see the housing boom as a speculative opportunity. Consequently, the affluent people are now loaded with several homes that no one occupies, whereas the folks who truly need housing are unable to afford it. In Chengdu, I know a few young people who have been speculating in real estate with capital provided by their rich parents.
What will happen when the wealthy people stop speculating and realize that the housing boom is a giant castle in the air? My hunch is that people will start getting out of the housing bubble.
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