Household Registration, Debt-Free Purchases, Enthusiastic Buyers, Beijing’s Strategy
The resilience of Chinese real estate market, characterized by its unique resilience, operates under a system that effectively separates it from many global counterparts. This resilience is a product of strategic policies, strong government intervention, and the distinct hukou system that creates over 1,000 individual real estate markets across the country. This combination has fostered a stable environment where panic selling and foreclosure crises are less likely, making the market robust even in challenging times.
- Chinese real estate does not exist, because hukou. Over 1,000 real estate markets exist, separated by hukou, residency permits. Each town has its own dynamic and requirements: the right marriage or a PhD earns a Shanghai hukou.
- Most Chinese own their homes outright — they don’t have a mortgage. 80% of Chinese homeowners have no mortgage. So there won’t be any panic selling of homes; and there won’t be any foreclosure crisis regarding banks like it happened in the US during the 2008 mortgage crisis.
- New buyers will stop any downward trend. As prices go down, housing will attract new buyers. There are many young people who can’t afford homes right now. For them, houses will become more affordable if prices go down, say, 20%. There will also be speculators who will come back when the home prices start to drop. SOEs buy apartments and rent them to low-income residents at below market rates. Solve a real estate problem and house the poor! Win-win.
- Beijing has the tools. China has had no recessions or a financial crises in 40 years because everyone — Beijing, local governments, SOEs, banks, developers, corporate conglomerates – pitches in and work together. Beijing could try cutting mortgage rates, lowering deposits, setting price controls, subsidizing young married couples, and so on. There is no market ideology in China, so any pragmatic idea will be quickly adopted. Beijing gave Evergrande special loans to restart unfinished real estate projects within a month.
World Affairs: While property sales across China have plunged 30% and prices have declined 11 months in a row as shown in the chart, prices are down only 3% YoY, and in Beijing, Shenzhen and Shanghai, prices are edging up. But prices in Tier 1 cities are astronomical. The first goal is to make housing affordable; the bigger goal is reducing China’s dependence on real estate and construction to generate growth. The real estate sector will stagnate as the workforce shrinks every year, but leaders and people will not squander a great geopolitical opportunity because real estate problems. That’s too silly
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Winners and Losers
The winners of China’s housing bust are burnouts and beach bums. “Situated in scenic towns and all but free, they’re the perfect flats for lying flat.” Read more →
Zhengzhou, a city of 12 million, is the first big city to end hukou residency requirements, to stabilize the real estate market and attract talent from across the country. Those willing to settle in Henan’s provincial capital can apply for the household registration document, according to an updated hukou guideline. The hukou system has been in place since the
1950s and is tied to certain social welfare benefits, including access to health care, education, and the right to purchase properties. Recently, a Chinese province and cities with fewer than 3 million people have either scrapped or readjusted their hukou policies, with Shanghai becoming one major city offering the hukou to master’s students graduating from the city’s universities. Read more →
