Li KaShing (chin. 李嘉诚) is 1 of the largest developers in Hong Kong and at the same time the richest man in Asia. He is president of the holding CheungKong (chin. 长江实业). His comments on the real property marketplace in China have sparked many discussions, comments and opinions in fresh months.
And here's how Li KaShang sees this situation:
citing the data of the Ministry of Housing and agrarian improvement (住房和城乡建设部) that:
- real property loans account for 40% of all bank loans,
- 50% of local government income comes from real property leases,
- 60% of household property is located in properties. Hence, this sector is so socially and economically important,
Li KaShang asks the following questions and answers:
Why Chinese like to buy apartments?
On the 1 hand, to start a household (without own ‘M’ in Chinese tradition, it is virtually impossible to marry). The acquisition of an flat is the highest precedence of life in China.
On the another hand, the flat is not only utilized for housing, it is connected with the possibilities of obtaining many facilities which give life in the city – e.g. education of children (schools in the city) or easier access to medical care.
Besides, for many people buying an flat is simply a measurement of success. So housing is simply a tool for building social prestige.
At the same time, it should not be forgotten about its crucial function as a form of financial investment. Since Chinese housing ceased to service exclusively as a ‘roof over the head’ erstwhile they became an asset, prices have increased sharply.
From the position of fresh decades, those who bought apartments years ago could have made quite a few money selling their apartments after a fewer years. Current buyers feel much greater financial and credit stress. There is besides another phenomenon. According to statistics, in large Chinese cities (also thanks to population migration), the housing ownership ratio reached 96%. More than 40% of households have 2 or more housing units.
Looking at these figures, we can conclude that presently there are no shortages of housing on the market, and most people who could afford to buy them purchased them. Others (young people) may not be able to bear the weight of buying mixing due to property prices.
Why have housing prices been rising?
Li KaShang points out respective main reasons why housing prices have been rising in China for so many years.
Firstly, with the steady growth of urbanisation and the increasing request due to the continued migration of agrarian populations to cities, there is an insatiable request for housing. As more and more people can become a real property buyer, housing prices naturally increase. There is simply a right of request and supply.
Secondly, the demolition of the oldest buildings that do not meet modern standards plays a role. Families surviving in specified “poor” demolished settlements receive compensation for which they buy fresh apartments (often with financial self-government assistance). This additional increase in request is further driven by rising housing prices.
Li believes that all situation on the marketplace has its advantages and disadvantages that housing prices cannot always rise. According to marketplace analysts, in no country in the planet real property prices have increased continuously for more than 50 years. It is already noticeable that surviving in China is becoming a place to live, not part of property.
This means that the real property sector will surely face major changes. Over the last 2 years, housing prices in many cities have stopped increasing and even started falling.
Why are housing prices falling?
Up to the second half of 2021, the real property marketplace was dominated by the tendency to get housing for investments. Many people bought two, 3 and more premises due to the fact that people believed that “the prices of housing would proceed to increase” and “there would be no fall in their prices.”
By mid-2021, however, not only did they halt growing, but in a different degree they began to fall, especially in tiny and medium-sized cities. Since the beginning of 2022, local governments have begun to outrun the introduction of countless financial facilities, taxation facilities, the abolition of previously introduced restrictions. These actions did not bring the expected effect.
According to Li KaShang, current housing prices in the country have far exceeded the affordable level for average people, and in the long word this will origin the property marketplace to face the dilemma of oversupply.
The marketplace is increasingly saturated and request is steadily weakening. Whether we look at this marketplace in Hong Kong or anywhere in mainland China, housing prices will proceed to fluctuate and they will gotta adapt to the situation. The fever of buying apartments is the past.
According to developer Li, the main reasons for the decrease in housing prices are:
- the effects of a long-term epidemic and lockdown – restrictions or difficulties in making money, failure of free cash resources, importantly reduced household savings, deficiency of resources to invest in real estate;
- The housing ownership rate by families reached 96%, of which more than 40% of households bought 2 or more apartments. Those who were going to buy an flat that they could afford already made a purchase. request has so fallen significantly.
Li KaShing believes that in the next 5 years the basic request will be met, the "famine of housing" will be exhausted.
The dilemmas facing the owners of 2 and more apartments.
These households, which own many apartments, will inevitably face the following problems in the coming years:
- Real property marketplace developments. In fresh months, the main media platforms have been talking about revitalising this market. This is not in line with reality, as the media focuses on the movement on the secondary market. Meanwhile, request is falling in the real property market. Will prices so stay at a certain level, or will prices start falling? – the effect of the increasing number of sales offers competing with each other.
- We request a permanent depreciation of the apartment. It is clear that the increase in the ageing population and the continuing decline in the number of children, with the increasing number of young people alone, will have a immense impact on the real property market. It will become more hard to sale apartments, which will velocity up their depreciation.
- Increasing maintenance costs. In fresh years, the government has begun to introduce a property tax. And although it has not yet been full implemented, it will sooner or later be implemented throughout the country. This taxation besides covers income from land as well as from the acquisition and sale of apartments. Promoting this taxation may further reduce marketplace speculation and address the large number of empty housing. For families with more than 1 apartment, the advent of this taxation means that the cost of having each flat will increase significantly, and the excess of them will shortly become the alleged “hot potato”.
- Difficulties in cashing in. presently there are more housing offers on the marketplace for sale than willing to buy. If the owner of the flat wants to recover rapidly the money invested in the acquisition must definitely lower the price. In this situation, those who have many apartments are in trouble. If they do not lower the price – they will not sale the property, and if they lower the price besides hard – they will lose the money.
- Difficulties with rental – erstwhile housing prices emergence rapidly, investors ignore the costs associated with property ownership, as possible profits in addition cover monthly expenses. But erstwhile housing prices do not emergence or even fall, the cost force gets higher, many owners will gotta rent them to ease the problem. However, in order to rent an apartment, you request to invest in its equipment, decor. At the same time, there is simply a increasing number of municipal housing for rents, as well as private offers from owners of many apartments, who want to remove part of the cost of maintaining their properties. In this situation, the acquisition of a loan-based apartment, in order to rent it, now has no economical justification. That way, you gotta get into business all the time.
- Credit force – If housing prices proceed to rise, then the acquisition cost can be ignored, profits will cover interest costs without problem. But erstwhile housing prices do not emergence or even fall, sales at the planned price will not be possible. And if the interest rates on the debt increase further, it can be highly hard to gain on real property sales.
Social media is discussing whether Li Ka Shing is exaggerating or correct in presenting the current and future situation on the housing marketplace in China.
Source:
"Let a 100 opinions flourish" is my paraphrase of the celebrated message by president Mao ZeDong – "Let a 100 flowers flourish" (chin. 百花齐放) – delivered in May 1956, during the speech of the initiator of the political-cultural run encouraging the free expression of different views on political and economical issues.
Author: 梁安基 Andrzej Z. Liang, 上海 Shanghai, 中国 China
Email: [email protected]
Editorial: Leszek B.
Email: [email protected]
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