China Works to Avoid Housing Slump

A financial crisis is swirling throughout the world: housing market bubbles have inflated and burst, and the sub-prime loan has brought the economy of the United States to …

A financial crisis is swirling throughout the world: housing market bubbles have inflated and burst, and the sub-prime loan has brought the economy of the United States to its knees. Amid all this, China has managed an effective and perhaps even booming housing industry, but how long it may last is in question. Some say the end of the boom is fast approaching.

The driving force behind China’s thriving housing market has been massive urbanization by the country’s population, with some 15 to 20 million moving to Chinese cities each year, according to the Wall Street Journal.

But home sales are slowing. Some parts of China, major cities especially, have an oversupply of housing stemming from construction for this summer’s Olympic Games as well as from a years-long construction boom that was underway before the Olympics. And while the global economic crisis has not hit China as hard as it has hit many countries, China has not been immune to the world’s financial woes. Many potential buyers are now being scared off by low prices and a weakening economy.

Local governments are taking notice of the lag in home sales, as they are now offering cuts in transaction costs and subsidies to buyers, according to the Economist. The city of Hangzhou is even going so far as to help rural residents relocate to the city with less trouble by assisting buyers in obtaining urban-residence certificates, required for a permanent move.

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Other major Chinese cities, such as Beijing, have been more resistant to a course of action leading to government intervention in the housing market, according to the Economist.

If China’s local governments are unable to provide some help to the market, a downturn in housing could mean big trouble. Some 80 million Chinese are employed in the country’s construction industry, and real estate made up as much as 10 percent of China’s gross domestic product last year. Commodities are already beginning to suffer, with steel production down 5.5 percent from a year ago. The effects can be felt all the way down to appliance retailers, who are already seeing sales of air conditioners and refrigerators down in just a year’s time, according to the Wall Street Journal.

The effects of a housing market downturn would likely not be nearly as devastating to the Chinese financial system as they have been in the United States. Real estate-related loans by Chinese banks account for just around 19 percent of the total amount of loans given, whereas in the United States, commercial banks hand out 50 percent of their loans for real estate-related purposes, according to the Wall Street Journal.

Now more than ever, buyers are skeptical, and as prices continue to fall—forcing developers to cut costs themselves—these conditions combine to further a slide in the real estate industry in China. A survey by China’s central bank found that some 13 percent of households plan to buy a home in the next three months, the lowest number on record, according to the Wall Street Journal.

The hope, according to the Economist, is that with banks ready to lend, household debt at nearly zero, and an ever present demand for urban living, the people of China will continue to buy up properties, steering the country away from and out of any potential housing market troubles.


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