The Chinese real estate industry is in a confusing place right now, with home prices at an all-time high, but dropping so quickly that industry experts can’t predict how stable the industry will be in the months to come — much less how the entire situation will affect China’s economy as a whole.
But the real problem is that the real estate industry can’t be analyzed just by looking at the big picture; as more statistics roll in, describing the bleak state of China’s property values, it’s becoming clear that the average Chinese citizen can’t ameliorate the problem. The average citizen can barely afford to own an apartment in an urban Chinese area, in fact.
Bloomberg News recently noted in a November 5 article that the average 1,076 sq. foot apartment in China now costs about 40 years’ worth of income, compared to the average 26 years’ worth of income that an apartment of the same size would cost in New York City. A standard 900 sq. foot home in Singapore costs about 11 times the median household income, and a standard 50 sq. meter flat in Hong Kong is around 14 times the median income.
The average Chinese buyer is required to pay a down payment of around 30% of the purchase price when buying a home, and at least 60% of the purchase price must be covered in order to be eligible for a mortgage.
Forbes contributor Kenneth Rapoza notes that home sales fell by 10.8% in China from January to September, and the National Bureau of Statistics said that this decline in sales totaled around 4.05 trillion yuan ($661 billion).
The Chinese government recently loosened restrictions on mortgages in order to encourage buyers to invest in property, and Bloomberg News reports that online property investors are contributing to the trend, allowing unqualified lenders to take out money. It’s no surprise that investors and property management firms created these online resources for property buyers, considering that China is already driven by digital technology and has helped create the vast web of servers and clients that currently makes up the internet.
But Americans are likely to remember that a significant rise in unqualified loans is exactly what caused the American economy to go down in flames back in 2007. Seven years later, the country is still trying to create stable jobs and industries.
The online lenders in China may be a viable solution to the real estate problem, because they’re run through private firms and are considered “peer-to-peer” lending, rather than being moderated by the central bank. But because these online lending programs are largely unregulated and do not rely on the credit scores used by banks in order to approve a loan, there could be plenty of sketchy transactions taking place that aren’t helping the economy.
Even if the online lending programs are successful, real estate security firms could have quite a bit of trouble analyzing the success, simply because of so little regulation. But as long as the Chinese real estate industry doesn’t fall down the same rabbit hole that crippled the American economy, perhaps a lack a regulation isn’t so bad after all.