Page 218 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
Real Estate will drop in China remains uncertain. But the new policy
should help some young professionals who are not ready
Cushman & Wakefield senior associate director and to buy homes for marriage (Huang).
head of research North China Sabrina Wei, “We expect
that despite ongoing trade frictions between the US and The residential property forces driving demand
China, and even in the event trade volumes between the have not changed in the past 20 years despite a series of
world’s two largest economies soften on the back of this, government interventions, urbanization, rising middle-
there will likely be no material change to the key demand class income and the anomaly of a one-child policy. High
drivers of the commercial real estate market in China.” US economic growth across diverse sectors simply created
real estate investment managers, private equity firms, and more employment opportunities. The fundamentals of
banks with origins in the US have been active in China for rising population, income, and employment sustained
many years. US investors have been especially active and over two decades created real demand that powered
competitive during periods where tough lending policies housing prices to grow over 600 percent in most major
were in place. Thus, there are other indications that China cities. While this caused loud protests from young
may become more attractive to foreign investment. China people over the affordability of housing and resulted
may loosen market thresholds for foreign investment, in the government imposing cooling measures, these
and there is a clear tightening trend with respect to the fundamentals continue to exert upward pressure on
Chinese lending environment. This bodes well for foreign prices. The astronomical rise in prices is simply the
investment activities to flourish as local funding sources result of rising population with rising income chasing
run dry (Wei). limited supply in prime locations close to employment
opportunities. Another factor driving demand and prices is
Residential the large floating population of commuting professionals
and businessmen from neighboring provinces and
No matter how fast China is urbanizing, the traditional buyers among expatriates and the overseas Chinese. As
idea of getting married before starting a career still a result of this pressure, eligibility restrictions on foreign
significantly affects Chinese society. The prerequisite for buyers were first introduced in 2012 and later adopted
marriage for Chinese men has evolved over the past 50 nationally. Due to such regulations, the current price
years from a bicycle, a watch, and a sewing machine into level can be deemed artificially restrained by multiple
an apartment, a car, and a good amount of savings in the cooling measures that distort actual market demand.
bank. The apartment is the priority. People under 40 are In the end, assessing the residential housing market
the main property buyers and more than 90 percent of pricing comes down to PIE. When a city’s Population,
young Chinese get financial help from their parents. Income and Employment (PIE) opportunities are on the
rise, it is inevitable that real estate demand and prices
The culture itself could be the reason for China’s will follow. In China the rising PIE has been favorable and
skyrocketing property prices, but growth has slowed will continue to be the leading indicator of where the
recently thanks to tighter controls by city governments. residential real estate market of the country’s top cities is
Also, the central government has started encouraging heading (Chen).
renting to cool down the price of real estate. The problem
is China’s strict household registration system, known China’s property prices are expected to cool steadily
as hukou, has led residents to prefer buying to renting. into 2019 amid persistent curbs on buyers and tighter
Started in 1954, hukou is a kind of urban passport, which monetary conditions, but the market remains good albeit
determines the holders’ access to public services based a bit volatile. The Chinese Academy of Social Sciences
on their birthplace. It means citizens who have rural or (CASS) said home prices in top-tier cities are expected to
secondary or tertiary city hukou are not entitled to all plateau, while surging lower-tier cities may not see price
public services while renting in Beijing or Shanghai. growth slow for another year. China’s property bubbles
China has started to reform this outdated system, yet it are still “relatively big”, said Ni Pengfei, a senior researcher
is not enough to solve the current problems for migrant with CASS, stressing that current market stability is just
workers. Recently the Chinese government has given a “short-term equilibrium” with market sentiment being
renters in 12 major cities — including Beijing, Shenzhen particularly “fragile”. Some major cities may need to roll
and Nanjing — the same access to education and social out more price cooling measures this year, it added, while
service as homeowners. Whether the price of the property lower tier cities will likely phase out stimulus policies
218
Real Estate will drop in China remains uncertain. But the new policy
should help some young professionals who are not ready
Cushman & Wakefield senior associate director and to buy homes for marriage (Huang).
head of research North China Sabrina Wei, “We expect
that despite ongoing trade frictions between the US and The residential property forces driving demand
China, and even in the event trade volumes between the have not changed in the past 20 years despite a series of
world’s two largest economies soften on the back of this, government interventions, urbanization, rising middle-
there will likely be no material change to the key demand class income and the anomaly of a one-child policy. High
drivers of the commercial real estate market in China.” US economic growth across diverse sectors simply created
real estate investment managers, private equity firms, and more employment opportunities. The fundamentals of
banks with origins in the US have been active in China for rising population, income, and employment sustained
many years. US investors have been especially active and over two decades created real demand that powered
competitive during periods where tough lending policies housing prices to grow over 600 percent in most major
were in place. Thus, there are other indications that China cities. While this caused loud protests from young
may become more attractive to foreign investment. China people over the affordability of housing and resulted
may loosen market thresholds for foreign investment, in the government imposing cooling measures, these
and there is a clear tightening trend with respect to the fundamentals continue to exert upward pressure on
Chinese lending environment. This bodes well for foreign prices. The astronomical rise in prices is simply the
investment activities to flourish as local funding sources result of rising population with rising income chasing
run dry (Wei). limited supply in prime locations close to employment
opportunities. Another factor driving demand and prices is
Residential the large floating population of commuting professionals
and businessmen from neighboring provinces and
No matter how fast China is urbanizing, the traditional buyers among expatriates and the overseas Chinese. As
idea of getting married before starting a career still a result of this pressure, eligibility restrictions on foreign
significantly affects Chinese society. The prerequisite for buyers were first introduced in 2012 and later adopted
marriage for Chinese men has evolved over the past 50 nationally. Due to such regulations, the current price
years from a bicycle, a watch, and a sewing machine into level can be deemed artificially restrained by multiple
an apartment, a car, and a good amount of savings in the cooling measures that distort actual market demand.
bank. The apartment is the priority. People under 40 are In the end, assessing the residential housing market
the main property buyers and more than 90 percent of pricing comes down to PIE. When a city’s Population,
young Chinese get financial help from their parents. Income and Employment (PIE) opportunities are on the
rise, it is inevitable that real estate demand and prices
The culture itself could be the reason for China’s will follow. In China the rising PIE has been favorable and
skyrocketing property prices, but growth has slowed will continue to be the leading indicator of where the
recently thanks to tighter controls by city governments. residential real estate market of the country’s top cities is
Also, the central government has started encouraging heading (Chen).
renting to cool down the price of real estate. The problem
is China’s strict household registration system, known China’s property prices are expected to cool steadily
as hukou, has led residents to prefer buying to renting. into 2019 amid persistent curbs on buyers and tighter
Started in 1954, hukou is a kind of urban passport, which monetary conditions, but the market remains good albeit
determines the holders’ access to public services based a bit volatile. The Chinese Academy of Social Sciences
on their birthplace. It means citizens who have rural or (CASS) said home prices in top-tier cities are expected to
secondary or tertiary city hukou are not entitled to all plateau, while surging lower-tier cities may not see price
public services while renting in Beijing or Shanghai. growth slow for another year. China’s property bubbles
China has started to reform this outdated system, yet it are still “relatively big”, said Ni Pengfei, a senior researcher
is not enough to solve the current problems for migrant with CASS, stressing that current market stability is just
workers. Recently the Chinese government has given a “short-term equilibrium” with market sentiment being
renters in 12 major cities — including Beijing, Shenzhen particularly “fragile”. Some major cities may need to roll
and Nanjing — the same access to education and social out more price cooling measures this year, it added, while
service as homeowners. Whether the price of the property lower tier cities will likely phase out stimulus policies
218
