China’s Housing Bubbles: Quality Research Required
Hugh Pavletich FDIA
Christchurch
New Zealand
It is extremely difficult to find reliable reporting on the intensity of the housing bubbles across China, but this
article from the China Post of June 1, 2010 "Economist sees housing market bubble", appears to be realistic.
It states that in 2009 the average house price to average annual household income in China was 9.1 times earnings and
that it rose to 11.15 during the first two months of 2010. Beijing and Shanghai are reported to have exceeded 20 times
average household earnings during early 2010. These figures are from Yao Shujie, head of the School of Contemporary
Chinese Studies at the University of Nottingham.
The article noted that last week, Chinese real estate services company E House China released figures suggesting that
house prices to incomes nationwide in 2009 were 8.03 times incomes, but those in Beijing, Shanghai, Hangzhou and
Shenzhen were over 14 times household incomes.
Recently, Wendell Cox of Demographia, working with the South China Post, estimated that the Median Multiple (median house price divided by median household
income) for Hong Kong was 10.4 – as reported in this New Geography article Unaffordable Housing in Hong Kong . Because sufficiently reliable data is now available from Hong Kong, it will be included within the Annual Demographia International Housing Affordability Surveys going forward.
As the Annual Demographia International Housing Affordability Surveys clearly illustrate, house prices do not exceed
three times gross annual household incomes in normal markets.
Rather remarkably, in researching and reporting on the China Housing Bubble, there has been no discussion of the land
ownership differences of China and western countries.
Freehold land is not available in China. The land is leased for a remarkably short term of 70 years. Instead of
conventional ground leases in the west where ground rentals are paid, Chinese Local Governments demand an upfront
payment of capitalized rental. On this basis, the land interest should be a wasting asset over the term of the lease.
Rather remarkably – this appears not to be the case in China, where the buying public have convinced themselves (no
doubt with encouragement from real estate agents and developers) that at the end of the term of the ground lease, Local
Government will simply “gift” the land to home owners!
On the sound income to house price measure, China’s housing bubble is clearly the worst in the world. When the
unsatisfactory and uncertain land ownership issue is factored in as well, it is particularly concerning.
ENDS