Why China's real estate market is booming

A construction crane in China. The rapid urbanization of China means the government is building lots of housing as people move from farms into cities.

Steve Chiotakis: This week, Harvard University released
a report on real estate in the U.S. Home construction is way off. And the housing market is deeply depressed. One bright spot of the report: Lower rental-vacancy rates. Renters are back. In China, it's quite the opposite. Homes are going up everywhere. And people are buying.

Marketplace host Kai Ryssdal has been reporting the last couple of weeks from China. He's with us now from Shanghai with more on that. Hi Kai.

Kai Ryssdal: Hey Steve.

Chiotakis: What's going on with the real estate market over there?

Ryssdal: Well I'll tell you what, the better question is really what's not going on with the real estate market over here? It is absolutely crazy. We have been in Shanghai. We've been out in Chongqing out in Sichuan province way out west. We talked to a lot of different home owners -- pretty much the whole spectrum of property around here. It's just different. People are buying property as places to live. They're buying it as investments. Prices are still going up even though the government is still trying to control things and even though the government is adding to the housing supply here. And the home ownership rate is something like 80 percent. I mean, it's just, it's a thing that people do here is buy houses.

Chiotakis: Now I thought there was a lot of poverty in China, Kai? Isn't it just the rich who can afford to buy?

Ryssdal: Yeah, actually not so. We talked to a construction worker out in Chongqing a couple of days ago. He's a contractor actually. He does interior renovations on some of these apartments. He owns his own place. He owns the place next door. He's got a tenant in one of his units -- he's collecting income from that. We talked to a 24-year-old kid here in Shanghai before last week before we left. He also has property. That's just what people do here. And here's how they do it: they save. So this contractor that we met out in Chongqing, Mr. Lee is his name. He makes plus or minus 8,000 Chinese Renminbi a month, that's like $1,000-1,200 -- really not a bad living at all. Monthly living expenses like $300-400. So he banks the rest of it. I mean, this guy puts 60 percent of his income in the bank. And that's how, when they buy property, a lot of Chinese do it in cash.

Chiotakis: So they save and save and save, Kai. Why such a boom?

Ryssdal: Well a couple of reasons. One is obviously the booming Chinese economy, as you know. There is just more wealth here, right? And people need a place to put that cash. Part of it is because of the rapid urbanization of this country. People are moving from the farms into the cities by the millions. And the government, frankly, needs some place to put 'em. So the government is building housing like it's going out of style. They're going to build out in Chongqing, where we were until yesterday, 10 million square meters. That's 90 million square feet of housing a year for the next 10 years. Also though, it's that saving thing, right? People don't like to put their money in the banks here, they don't trust it. They just want something tangible. And what they do with it is... they invest. And they invest in property.

Chiotakis: Sounds like a bubble, Kai?

Ryssdal: Yeah, well you know, so that's the question I've been asking everybody, right? Because given where we've come from in the States in the past 5 years with housing, I literally say to people, "But aren't you worried about what happens when the bubble bursts?" But they look me straight in the eye, like this 24-year-old kid in Shanghai we talked to the other day, he literally said to me, "I am never going to lose money in the Shanghai real estate market. Ever." Right? That's what this kid believes. So the argument is, of course, that the rules here are different, that there is such a demand. People by the millions coming to the cities. They have to have some place to put 'em. There is no shortage of demand for housing here. And also the government's putting new rules here, right? They're trying to slow things down. You have to put 30 percent down, at least on a house. Most people, though, pay cash. So the basic financial situation going into the property market is usually stronger. You don't have those liar loans that we had in the States, for example, and the bad documentation and the people getting in way over their heads. It's tough to believe that it's not a bubble, but I have not found a single person here who's worried about a bubble any time soon, Steve.

Chiotakis: Kai, thanks. Safe travels.

Ryssdal: Thanks man. See you soon.


Chiotakis: You can see pictures and read about
Kai's trip to China by visiting our special page, China: The five-year plan.

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