Saturday, December 11, 2010

What went wrong in China…

85pc of urban Chinese cannot afford to buy a home as inflation accelerates

China's property bubble has grown so huge that 85pc of Chinese living in cities can no longer afford to buy a home, according to an influential Chinese government think tank. The Chinese Academy of Social Sciences (CASS) said that a typical Chinese property now costs 8.8 years of average earnings. In addition, house prices are still rising far in excess of wages, putting property beyond the reach of average Chinese. CASS estimated that Chinese property prices had risen by 15pc this year, although the rises in some cities have been far steeper. "House prices have risen steadily for years," said Zhou Linhua, co-author of the report. "This has inflated investor expectations of a high return, which has brought more money flooding into the market."

Posted by drewster @ 11:46 AM (917 views)
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4 thoughts on “What went wrong in China…

  • If nobody (well, 85%) can afford to buy
    — who is doing the buying?
    — where are they getting their money from?
    — why are prices going up?

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  • — where are they getting their money from?
    The money is almost certainly coming from borrowing; unless there’s a massive underground / black economy in China where people are earning a significant proportion of their income as undeclared cash-in-hand.

    — why are prices going up?
    Their economy is growing fast (though an increasing proportion of that growth appears to be a debt-bubble) and interest rates are low – in fact interest rates are below the rate of inflation, which makes holding cash very bad, hence the dive into assets (including property).

    — who is doing the buying?
    I’m not sure. Looks like anyone who can get a mortgage is buying.

    I like the VI spin at the end of the article:
    However, the CASS report attracted instant criticism. Ren Zhiqiang, the chairman of Beijing Huayuan, one of China’s largest property developers, saying that China has one of the world’s highest rates of private property ownership, with almost 80pc, or 500 million Chinese, owning their homes. “A reasonable conclusion would be that 85pc of Chinese cannot afford to buy a second house,” he said.

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  • 15% of urban Chinese are delighted.

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  • It’s when 85% of Chinese can’t afford rice……

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