In China, reality prices versus the property dream

The reason: he has bought an apartment and has to save every penny to pay the monthly installments on his loan.

It’s not that Zhou doesn’t earn enough. He earns 10,000 yuan (US$1,633) a month, almost double the average salary in Beijing. But he has to pay more than 2.5 million yuan for the 36-square-metre space in order to call it home.

Zhou is one of millions of Chinese suffering the consequences of high and still rising housing prices. From September 2012 to August, the average real estate price in Beijing increased from 28,602 to 38,212 yuan per square metre. The situation is the same in other cities, with no sign of any change in the trend.

Some argue that owning a house is not the be all and end all of life. But in China, like in most other countries, a house is a symbol of respectability and source of security. Like its counterparts in the West, China’s middle class is expected to play a key role in boosting economic growth through higher consumption. Several surveys show that middle class consumption contributes about 70 per cent to economic growth in many Western countries. The percentage is about 35 in China, with the government expecting ongoing reforms to increase it. 

However, unlike in the West, high housing prices are squeezing every penny out of middle-income homebuyers’ pockets, thus seriously curbing their capacity and willingness to consume. Many people like Zhou have to first save enough for the down payment for a home, and then cut expenses even on some essentials to pay the installments.

Another negative impact of high realty prices is the widening social gap. Three years ago, some economists noticed the emergence of a huge interest group benefiting from the massive fund flow into the realty sector. They feared that, in the long run, a small group would form the top of the housing market pyramid, while the majority would find it even more difficult to own a home.

The problem, however, is that even people who only want to rent will suffer the consequences of rising prices, because rising prices will force rents to increase and thus raise living costs. House rents in Beijing have been increasing for 52 consecutive months, playing a key role in the rising consumer price index. Some small businesses are already feeling the impact. In October 2011, quite a few bookstores in Beijing were forced to close because they could no longer afford to pay high rents.

Since President Xi Jinping talked about the “Chinese Dream” last year, government departments have been working to help realise the goal. For the nation, the Chinese Dream means maintaining social stability, ensuring economic growth and common prosperity, and building a secure future. For an ordinary family, however, the key factor in the Chinese Dream is a better life. And keeping housing prices within a reasonable limit is essential to realise the dreams of both the nation and individuals.

High housing prices and rents can hurt economic growth because they prevent the middle class from spending freely. It is essential for the government to take measures to keep realty prices and rents in check, because without it neither the national nor the individuals’ dream can be fulfilled.