Chinese property market study provides NZ insights

Chinese property market study provides NZ insights

Increasing population, more demand, higher housing prices and a possible bubble— sounds familiar but it’s not Auckland but China.

Annie Wang’s PhD thesis 'House Price Bubble in Urban China: Evidence from Eight Chinese Cities' casts some light on how the Chinese property market is mirroring our own and offers some insight into why overseas real estate may be popular there.

Ms Wang says her results suggest China’s housing markets did not experience a bubble in the study period of 1999 to 2013.

“The fluctuation in the house price indices of the eight Chinese cities can be explained better by the macroeconomic fundamental variables (such as inflation, income and mortgage rates) in the long-run than in the short-run,” she says.

Before 1999, unlike developed countries, private housing in China was treated as a social asset, produced, allocated and administrated by the state through work units.

The Chinese Government abandoned this welfare housing system and allowed people to purchase their own houses in 1998. Since then, housing gradually became the most important private property commodity for urban Chinese, she says.

Meanwhile, the acceleration of urbanisation caused a dramatic increase in population in urban cities of China and a strong increase in the demand for housing.

With the increase in the development of the housing market and rising in housing demand, the housing price surged rapidly over the last 10 years.

“Housing affordability has become more difficult for urban Chinese.”

Ms Wang says the Chinese Government has used various policy tools to control house prices, such as a larger down payment and higher mortgage interest rates to control the demand for houses to maintain a balanced and sustainable housing market.

However, Government housing policies and comparatively cheaper house prices overseas are the two major reasons that Chinese investors started to investment in overseas’ housing markets.

For example, she says, the average price for a second-hand apartment in Beijing is NZ$9446 per square metre, and the average price for a 100 square metre second-hand apartment in Beijing is close to one million New Zealand dollars.

She says if there was a housing bubble, it would have big implications for China and probably New Zealand if it burst.

“The development of the real estate industry is closely related to the country’s overall economic growth. If a housing bubble bursts, house prices will plummet before economic slowdown occurs, thereby inflicting a greater impact on consumer confidence and economic growth than any other industry can.

“A housing bubble will certainly have an international implication due to the integration of China into the world market. A decline in house prices in China would contribute to lower output growth, and negative spill-over to other countries.”

ENDS

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