The curbs aimed at cooling China’s overheated housing sector worked, but they also put the brakes on rapid growth. But boosting home sales could trigger class tensions.
BEIJING — Rising home sales and prices are cheered in the U.S. as keys to an economic recovery. But in China, the prospect of a housing surge is fraying the nerves of policymakers.
Alarmed by ballooning values — and the growing frustration of average citizens fearful of never owning a home — China’s central government in 2010 introduced curbs to cool the nation’s overheated real estate market. It worked. Tighter credit, a crackdown on speculators and limits on purchases of second homes slowed price rises and stopped some developments cold.
But those moves also put the brakes on China’s hard-charging economy, which, like the U.S.’, relies heavily on construction and real estate activity. On Thursday, China said its third-quarter gross domestic product growth had slowed to 7.4% from a year earlier, the slowest pace in 31/2 years.
China’s leaders now face some tough choices. Do they rev up the housing market to create jobs and boost economic growth, even if it means fueling class tensions and a potentially dangerous real estate bubble?
“A lot of things like steel-making, coal and construction equipment have taken a huge hit from the falloff in real estate and would presumably be boosted by a recovery,” said Patrick Chovanec, an economist at Tsinghua University in Beijing. “The only reason they’re not boosting real estate is that the alternative is actually worse.”
Real estate agent Wang Yu longs for the return of the go-go years.
She works at a luxury housing development on the outskirts of Chengdu, a booming metropolis of 14 million people in southwestern China. Modeled after a European village, the project, known as Salzberg, boasts faux Tuscan villas and cobblestone streets named for composers such as Strauss and Schubert.
On a recent weekday, the sales office was empty. Outside, a mangy dog sunned itself near a dry fountain with a statue of Beethoven. Wang said demand dried up when the government made it tougher for buyers to qualify for mortgages. Nearly a quarter of the development’s 145 homes remained unsold, she said, including the most expensive property, a 3,800-square-foot unit priced at $800,000.
“A few years ago, people would get loans,” Wang said.
He Kunwei, a senior broker at 21st Century real estate in Chengdu, said he too is struggling; his sales numbers are down more than half since last year.
Despite the government’s efforts, housing remains expensive and out of reach for the vast majority of Chinese; the average annual salary in Beijing, the highest in the country, was $8,900 last year.
Meanwhile, the average price of a typical 100-square-meter (about 1,076 square feet) home in nine coveted Chinese cities, including Beijing and Shanghai, was slightly more than $192,000 in June, the latest figures available from SouFun, China’s largest real estate website. That’s about 33% higher than it was three years ago.
Prime property in the capital can cost well into the millions of dollars.
Popular Chinese novelist Mo Yan, the winner of this year’s Nobel Prize in literature, joked about the problem in an interview with state media that ricocheted through Chinese social media. The author, whose works are laced with social criticism, said he would use his $1.2 million in Nobel winnings to buy property in the capital.
“I’m getting ready to buy a house in Beijing, a big house,” Mo said, according to a translation by China Digital Times, a U.S. website. “But then I’ve been warned I won’t be able to get anything that big.”
It remains to be seen whether China’s new leaders, set to be named next month in a once-in-a-decade handover, will change course on real estate. Among their considerations: Local officials throughout China are desperate to revive the market because their budgets rely heavily on land sales to generate revenue.
So far, Beijing has given no indication it will soften its stance. Although China is vulnerable to a larger global slowdown, its economy is in better shape than it was after the 2008 financial crisis. Back then, millions of migrant laborers were out of work. China’s real estate boom has also generated resentment among many average Chinese. Luxury apartments are viewed by some as the spoils of the privileged — and the corrupt.
Just this month, state media reported that an urban management official in southern Guangdong province is under investigation after it was discovered that he owned 21 homes valued at $6.3 million. His official salary: $1,500 a month.
Experts say the central government is wary of tensions being created by the nation’s growing wealth gap, one of the factors leading to the crackdown on real estate speculators two years ago. China is now aiming to build tens of millions of apartments aimed at low-income residents.
“They learned their lessons from 2010, when they ended up with a very dangerous situation with public anger,” said Rosealea Yao, an analyst for GaveKal Dragonomics, a Beijing research firm. “The government’s credibility was damaged then. This time around they will not let it happen again, even after the leadership transition.”
Beijing’s efforts to keep real estate affordable are little comfort to Chinese bachelors such as Gao Chuan, for whom buying a home is a crucial first step to attracting a bride and starting a family.
A recent college graduate, the 20-year-old is determined to buy property in his hometown of Chongqing in central China. His parents have offered to help with the down payment. The trouble is that homes in his $80,000 price range would require a three-hour commute to his new accounting job.
“I don’t see the effects of the government policies. Prices keep growing,” Gao said. “I feel like if I don’t buy an apartment now, I really won’t be able to afford one in the future.