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The Chinese Housing Bubble

Is there really a housing bubble in China?

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“They are building houses there is no demand for.”

That’s not true. Generally speaking, China has not built a house there wasn’t demand for. Even in the most desolate of housing complexes or in the heart of ghost cities just about every property sells to private owners. People are buying the masses of houses that are being churned out by the millions each year, and as they are being bought developers keep building more.

You would think with all of this supply the cost of housing in China would be cheap. It isn’t. It is almost incomprehensible, but even in a country that reputedly has over 60 million vacant apartments the demand for houses still exceeds the supply.

Why? Because buying houses is how the Chinese store their excess money.

I do not believe that they are exceeding demand. Rural poor and working class are moving into cities in droves and the middle/ upper classes are buying up suburban properties outside of the core downtown areas. The demand for housing is real and it is not even close to being met — just hang out in a Shanghai hostel for a while and count up all the young men who are staying there as they house hunt in vain.

But this incredible demand is perhaps not the result of a lack of availability but because of the habit of upper class Chinese to use houses as banks. Almost as soon as a block of new upper class housing becomes available all the units are bought up. These are all too often not purchased by people who have any intention of living in them but by those looking to invest their money into something they feel will retain value.

The demand for housing is is multifold, it’s not just for shelter. It’s a much discussed phenomenon in China that those with large amounts of excess money have few options to invest or even store it. The Chinese stock market has proved to be an excellent way for people to lose massive amounts of cash and banks don’t even pay enough interest to keep pace with inflation. So the answer for many has been property: people with the means are buying up houses all over the country as a way of investing their money. The result has driven housing prices up to ridiculous levels, so much so that earnest working and middle class people have severe difficulties when it comes to buying a home to live in, and has left hundreds of new developments, new districts, and even new cities looking like ghost towns.

There is a housing bubble in China, prices of apartments here are bloated many times what they should be worth, but this doesn’t seem to keep people from buying up more and more properties.

The Chinese government seems to like this form of investment, as it provides a market stimulus and economic return on their mega-city and urbanization initiatives.

From what I can tell from visiting and researching China’s sparsely populated new developments and cities over the past year, property investment, not the demand for shelter, seems to be the driving force of the housing market. In many new developments, such as Ordos Kangbashi, Zhengdong, Thames Village (Songjiang/ Shanghai), Anting New City, and hundreds more, well over 80% of the properties are owned by people with no intention of living in them any time soon. So they stand empty, posing an incredibly interesting scenario for developers and the government:

Do you keep building houses just because they keep selling?

But it is my impression that this isn’t a simple matter of putting on the breaks and coming up with mechanisms to curb investors from buying excess properties — such as taxing property or restricting how many homes people can own — as the capital uptake derived from this is partially driving China’s development industry.

From my understanding, economic bubbles burst when masses of investors decide to sell at the same time. There is no indication that this is bound to happen in China. In fact, demand for housing is still soaring.

This is not day to day money that most of these properties are being bought with, these are not generally investments that owners depend on seeing a return on, but are symbols of value that are honored like money or gold or stock. Any symbol of value can crash.

However, houses are also functional things — they can be lived in, they can be used, and far more people want them than can afford it.

Once purchased, these properties cost their owners next to nothing. There is no property tax here, these places are not sponging their owner’s money. They are kind of like money in the bank — you keep it there until you need it. There can be no bursting of an economic bubble until there are more sellers than buyers. This isn’t the case with housing in China, and it doesn’t look like it will be in the near future.

While the housing market here could very well implode in the event of broader economic collapse or recession in China, it won’t be the cause.

Filed under: China, Construction, Economics, Urbanization

About the Author:

I am the founder and editor of Vagabond Journey. I’ve been traveling the world since 1999, through 91 countries. I am the author of the book, Ghost Cities of China and have written for The Guardian, Forbes, Bloomberg, The Diplomat, the South China Morning Post, and other publications. has written 3694 posts on Vagabond Journey. Contact the author.

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