It was no surprise to hear Chinese premier Wen Jiabao sounding cautionary notes on property inflation during his set-piece address to the National People’s Congress on Saturday. In an online consultation in the run-up to the event, one in every eight questions from commoners was about soaring housing costs. Lo, property prices are officially now a “top public concern”, alongside illegal land seizures, food safety and corruption.
The other three may be simpler to address. The core of the problem is that in a decade and a half of private property ownership, China has never experienced a serious blip, never mind a crash. The closest it got was between August 2008 and February 2009, when month-on-month changes in the national residential property index, a blend of new-build sale prices in 70 cities, turned negative. Since the data series began in August 2005, the average monthly price increase has been 0.5 per cent, or 6 per cent a year – more than double the average bank deposit rate of 2.8 per cent in that period. That is why so many apartment blocks stand empty: rental yields do not matter. Mere ownership of a property is seen as a shortcut to wealth. And with mortgage rates for first homes (7.26 per cent) still about half the rate of nominal gross domestic product growth (14.7 per cent), why wouldn’t you gear up to take it?
If every spare yuan is saved for downpayments and mortgages, consumption must suffer, as do more volatile asset classes such as stocks. It is no coincidence that property is continuing to climb as the Shanghai Composite index treads water, still less than half of its October 2007 peak.