The Chinese Housing Market Boom

Prices Surge Despite Coronavirus Disruptions

More money was invested in Chinese real estate last month than during any other month on record. In February, when the coronavirus pandemic was at its peak in China, real estate investment slowed—but the market has since come roaring back.

During the 12-month period ending in June, people poured $1.4 trillion into housing in China. Home prices in Chinese cities climbed 4.9% between June 2019 and June 2020.

Analysts say that despite a brief slowdown in February, the coronavirus pandemic has led to even more investment in real estate in China overall. This is because some people see real estate as safer than foreign investments or stocks during this period of economic uncertainty.

Highly Leveraged Homebuyers

Home prices have been rising in China for the past ten years. Home sales in the country are driven by people borrowing money, which has led the government to worry about a bubble in the market.

The household leverage ratio in China, which measures money that people owe from mortgages and consumer debts relative to GDP, reached a new high of 57.7% in the first quarter of 2020. This year’s first quarter numbers also marked the largest quarterly increase for the metric since Q1 of 2010.

Over the past decade, global household borrowing has climbed by $11.6 trillion. China is responsible for about 57% of that increase while the US is responsible for roughly 19%.

Rapid Changes

What makes the Chinese housing boom all the more remarkable is that in the 1990s it was illegal for most people to own homes under China’s communist system. Now, about 96% of Chinese urban families own at least one home. The homeownership rate in the US is only 65%. Additionally, Chinese families in urban areas have about 78% of their wealth invested in residential real estate, while US families have more of their assets in pensions and stocks, with only about 35% of their wealth tied up in their homes.

Though the Chinese government is concerned about a housing bubble, looking at the housing market in China does reveal how a large amount of wealth has been created for millions of middle-class people in the country during a very short time. Investors will be carefully watching to see if housing prices in China continue their upward climb, and how that will impact the Chinese economy and the global economy.

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