Inflation-adjusted home prices in China have fallen below where they started two decades ago, and the fiscal fallout is hitting local governments even harder than developers.
It peaked in 2021, so apparently prices have been declining for 5 years, and are still declining!!
The Chinese economy may be weird, but I don’t get how prices can fall below what they were 20 years ago, when China is much richer today than they were back then? We were told for a long time China was in a huge housing bubble, but this is crazy!
This will guaranteed ruin many peoples economy for decades even for the rest of their lives. And many will be tied to their house because it’s impossible to sell at a price that will clear the debt, so they can’t afford to move.
In a normal market it’s nice to own your own house, but a market like this, if you bought 5 years ago, it’s a nightmare.
many will be tied to their house because it’s impossible to sell at a price that will clear the debt, so they can’t afford to move
if housing prices fall, you get less money if you sell your old house but it also requires less money to buy your new house so it cancels out and you can move just as easily or difficultly as you could when prices were high.
China was building housing like crazy, and companies kept the prices artificially inflated, even though that created literal ghost towns and a number of buildings had to be demolished due to safety reasons…
Now with the bubble popped, prices are resetting to market value, and since this means a new swathe of newly affordable housing, that availability drives prices down even further.
Think of it like this: you’re sitting on 3 million tonnes of apples. You’re selling each apple for $50. Nobody but a few idiots are buying them. Then you suddenly need the cash, and start dropping the prices - you have to go below market rates to offload all those apples to raise capital. And the raw amount of supply means you’re going way under market prices, dragging other sellers with you.
Yes I know all that, bubbles result in stupid projects and poor quality, and banks stupidly believing growth will continue, so loaning to buy a house is easy. that’s the same here. I know how bubbles work.
But China has had an economic growth rate on an average of 10% many years of that period, it’s slowed down a bit in recent years but is still high.
But let’s say 15 years with 10% growth, that means the economy has grown 4 times in 15 years!!
So it’s crazy that prices fall back to less than when the economy was only 25% of what it is now.
Your description doesn’t explain that.
You’re also not truly buying the land, because private land ownership is illegal in China. Instead, you’re buying land usage rights for a long period (usually 70 years). Then it gets returned to the state (or the local farming collective, if you’re in a rural area that is managed locally) after your lease is up.
Basically, you can own your house, (the materials used to build it, the items inside of it, etc), but not the land it is built on. So after that 70 year lease is up, you (or more likely, your descendants) will need to either move off the land or sign a new land use contract with the applicable government (either local or state level).
And there’s always a chance that the government goes “actually we need to use that land for the public interest” and they can refuse to re-sign the lease. Maybe they want to turn it into a public park, or build a railway through the area, or use it for extra farmland. The same way the US government can seize an American’s land via eminent domain, the Chinese government can revoke a land use agreement.
But having an expected time the city can have the land back do helps with planning with development, or modernize run down buildings.
It being a lease means you also can very easily plan ahead your maintenance by funding it through the sale of the land upfront, not that much difference than collecting property tax except it is actually valued based on the land not the building on top of it.
It’s better if land is not owned by an estate forever.
It peaked in 2021, so apparently prices have been declining for 5 years, and are still declining!!
The Chinese economy may be weird, but I don’t get how prices can fall below what they were 20 years ago, when China is much richer today than they were back then? We were told for a long time China was in a huge housing bubble, but this is crazy!
This will guaranteed ruin many peoples economy for decades even for the rest of their lives. And many will be tied to their house because it’s impossible to sell at a price that will clear the debt, so they can’t afford to move.
In a normal market it’s nice to own your own house, but a market like this, if you bought 5 years ago, it’s a nightmare.
if housing prices fall, you get less money if you sell your old house but it also requires less money to buy your new house so it cancels out and you can move just as easily or difficultly as you could when prices were high.
China was building housing like crazy, and companies kept the prices artificially inflated, even though that created literal ghost towns and a number of buildings had to be demolished due to safety reasons…
Now with the bubble popped, prices are resetting to market value, and since this means a new swathe of newly affordable housing, that availability drives prices down even further.
Think of it like this: you’re sitting on 3 million tonnes of apples. You’re selling each apple for $50. Nobody but a few idiots are buying them. Then you suddenly need the cash, and start dropping the prices - you have to go below market rates to offload all those apples to raise capital. And the raw amount of supply means you’re going way under market prices, dragging other sellers with you.
Yes I know all that, bubbles result in stupid projects and poor quality, and banks stupidly believing growth will continue, so loaning to buy a house is easy. that’s the same here. I know how bubbles work.
But China has had an economic growth rate on an average of 10% many years of that period, it’s slowed down a bit in recent years but is still high.
But let’s say 15 years with 10% growth, that means the economy has grown 4 times in 15 years!!
So it’s crazy that prices fall back to less than when the economy was only 25% of what it is now.
Your description doesn’t explain that.
The housing market is different in China. Most home are paid entirely at sale without a loan.
You’re also not truly buying the land, because private land ownership is illegal in China. Instead, you’re buying land usage rights for a long period (usually 70 years). Then it gets returned to the state (or the local farming collective, if you’re in a rural area that is managed locally) after your lease is up.
Basically, you can own your house, (the materials used to build it, the items inside of it, etc), but not the land it is built on. So after that 70 year lease is up, you (or more likely, your descendants) will need to either move off the land or sign a new land use contract with the applicable government (either local or state level).
And there’s always a chance that the government goes “actually we need to use that land for the public interest” and they can refuse to re-sign the lease. Maybe they want to turn it into a public park, or build a railway through the area, or use it for extra farmland. The same way the US government can seize an American’s land via eminent domain, the Chinese government can revoke a land use agreement.
But having an expected time the city can have the land back do helps with planning with development, or modernize run down buildings.
It being a lease means you also can very easily plan ahead your maintenance by funding it through the sale of the land upfront, not that much difference than collecting property tax except it is actually valued based on the land not the building on top of it.
It’s better if land is not owned by an estate forever.