Chinese Real Estate: The House that Greed Built

Real estate in China is hot! For several years property prices have increased year over year by a whopping 7.8%, making the most populated country on the planet also one of the most expensive places to live. In 2009, China’s housing price to income differential was the highest in the world, surpassing metropolises that are notoriously pricy to live in:

Owning a home is a cornerstone to the Chinese way of life…if you’re an eligible young bachelor without a semi-mortgaged pad, well son… you’re going to have trouble finding a wife. In China, to get married and have a baby (which is pretty much what everyone expects you to do), you have to own your own house. And not just renting a property for some years and then moving, as is customary in the West, but settling down in one home and paying off the mortgage until it truly belongs to you. The only catch is that the land upon which the house is built always belongs to the government, and after 70 years (even if 3 generations of your bloodline have slaved away to own that property), the Party has the right to take away that house from you again.

Nevertheless, it seems that nothing dissuades Chinese homeowners…they simply need houses. No matter how ridiculously expensive home prices are jacked up, some Chinese consumers have always been willing and able to pay. Many landlords and wealthy Chinese families have made quick millions, flipping properties and expanding their real estate empires. It’s been good for some, and bad for many more…however, it seems that this hustle has reached critical mass. The jig is up…

China's Modern Ghost Towns

In every Chinese city that I visit I see developments full of vacant apartments, ghost houses with no lights on in the night, cranes standing motionless over halted construction sites. Many people in these cities—especially migrant workers, the lower class and increasingly the middle class—can’t afford to pay these extortionary prices anymore. Many 20-something year olds that I’ve met on the road are frustrated and angry…four-fifths of their first-job salaries go to paying for their first (and only) apartments.  They are stuck paying mortgages early in life, on houses that will probably be seized from their grandchildren by the government. Many are fed up…and many simply can’t afford it anymore.

But the real estate game is still booming... but many fear that the speculatory bubble is about to burst, and are bracing themselves for the crash.

So opportunists welcome! If you have major capital at your disposal, you might still be able to squeeze in a few quick real estate millions in China. But it seems that the window of opportunity is closing…and personally, I wouldn’t invest anymore into an industry whose foundations are already buckling, and are bound to someday come tumbling down.

-Seb