Building a high-rise palace for every peasant

Chinese Housing Market:


Building a high-rise palace for every peasant?

? Soaring prices for high-end residential property in China have generated widespread comparisons with the recent housing boom in the US that ended in the subprime debacle. In fact, the only recent example of soaring property prices coinciding with double digit vacancy rates, soaring credit and construction growth but low average mortgage loan-to-values and an incestuous relationship between politicians, banks and developers was Ireland, where a similar hoarding pattern developed until the market collapsed along with the economy in 2008. Housing cconstruction in Ireland went from 5% of GDP to 15% in a decade (similar to current Chinese levels), at which point the country was annually producing five times more housing per capita than the UK while Irish bank lending to the non-financial private sector had more than trebled in a decade to 200% of GDP by 2008.

? In China , with negative real interest rates and casino like domestic stock markets as the only alternatives, real estate is the primary repository of personal wealth and is being hoarded as an inflation hedge like gold bullion, which helps explain the 20-25% plus vacancy rates for newly purchased apartments. Substantial hidden wealth in the ‘grey’ economy (which is probably over 10% of GDP) has also supported prestige developments. Nonetheless, the scale of price appreciation has become a source of widespread popular discontent among the younger generation of self describing ‘house slaves’ and that, as much as the threat to the banking system, is driving attempts to tame the market without killing it.