The Chinese real estate market seems unbeatable with its steady rise in home prices and investment interests. Developers have built so much in The Red Dragon that they are now looking elsewhere to expand their territory. Just how incredible, however, is China’s real estate market and is it headed for disaster?
China In The Past
Optimism began to spread like wildfire in China at the end of 2015 after the government implemented new measures that supported housing market growth. Many citizens took advantage of the propositions by purchasing both residential and commercial properties. Shanghai saw a rise in the price index by 8.3 percent during the month of October. Beijing’s home prices increased by nearly five percent the next month with the average residence costing CNY 43,349 per square meter. While some predicted a swift decline in China’s housing market, they have, to date, been proven wrong.
The Red Dragon in 2016
The first eight months of 2016 were profitable as home sales in China rose by 40 percent. Overall, new sales valued around 5.7 trillion yuan, which equates to about $865 billion in American dollars. Affordable housing was not included in the numbers, though government-housing percentages averaged around 40 percent. In all, China saw a 25 percent increase in the number of square meters sold in the country. More than 774 square meters sold in eight months implies that individuals may have bought big or in bundles which, in either case, contributed to the growth of the Chinese market.
The field of investment was also an area that experienced growth in the real estate sphere. Residential and commercial investment rose by 5.4 percent during the first eight months of 2016. Much of that property was purchased by developers who sought to build more homes that they could put up for sale and quickly earn returns on their investments. New homeowners also tread the waters of real estate purchasing during the first eight months of 2016. While it is true that domestic buyers received benefits for purchasing property, developers were the victors in 2016.
The Building and Development Situation
Although they dominated the market in 2016, investors ran into a few problems with overstock. Many complexes have been built, but not enough buyers took purchased property. Such high levels of inventory have left the country’s economics sphere on edge. Many financial institutions presently worry that consumers and lack thereof will be the determining factor on whether or not developers will pay back advances.
To make matters worse, innovators continue to borrow money for new homes and commercial building despite demand remaining steady. While state-owned banks have the power to stop granting loans to developers based on the sole fact that the sector is no longer as profitable as it once was, financial institutions refuse to place barriers on construction companies. Whether such refusal is due to hope that demand will improve or based off of fear is not known. China, however, may be headed down a terrible road of excessive debt with its current practices of loan approval.
About Foreign Investment
The Czech Republic leads the way in foreign investments in China. The country invested nearly CZK 3 million in 2016 and shows no signs of slowing down in coming months. The United States is also a significant contributor to China with just over $39 million in foreign investments. Kuwait is one of the lower supporters with just KWD 3 coming into China’s real estate market.
Some argue that an innovative country such at The Red Dragon should have more foreign investments. The country probably would have more contributors if not for its strict ownership policies. Chinese law restricts foreign investment to individuals who have either worked or studied in China for a year. It is impossible to purchase property while overseas as foreign investors must undergo supervision for a week before they are given the right to buy property in China.
There are two kinds of property titles in The Red Dragon: use rights and free hold. Whereas use rights title is more of a lease, freehold gives individuals full rights to the property. Foreign investors can never be landlords in China, which means that their prospects will always be limited.
Real Estate Agents in China
Real estate agents are also referred to as sales staff in China. Most of their income is based on commission while smaller portions are made up of consistent wage earnings. Just as with any salesperson position, life as a real estate agent in China is difficult. Earning possibilities are endless but getting to the top is a matter of dedication and hard work. Sales staff have the potential to bring in $29 bn and may see an annual growth of 10.6 percent while carrying out their careers.
The steady rise in house prices makes many believe that China is headed for a bubble pop. Shenzhen, Shanghai, Nanjing, and Beijing may feel the greatest effect of a collapse as homes in these regions have seen the most significant rise. Investors and home buyers should pay attention to the government’s response to potential decline. Whereas new safeguards represent accountability and proper planning, ignoring the matter is a sure sign of denial.
China’s real estate market is on the rise and shows little sign of coming down anytime soon. Foreign investors who call The Red Dragon home in addition to their primary homelands should consider making the plunge in Chinese real estate.