Economy

The Latest Dark Side Of China's Economic Engine: Soaring Housing Prices

In Beijing, housing price per square meter is as high as $2,000, which means most people who work in the city can't afford to live there. Government efforts at subsidized housing have fallen short, as China begins to pay the price for its modern

Buying a home in Beijing is getting harder and harder (Keemz)
Buying a home in Beijing is getting harder and harder (Keemz)
Harold Thibault

BEIJING – Sitting on his bed, in a bare 10-square-meter room furnished with only one steel shelf, Wang Xin sums up his situation: "I was lucky."

Xin, a teacher, lives in cramped quarters on the campus of the Beijing International Studies University, located about 10 kilometers outside the city center. What makes him lucky is that he will soon be able to sleep in his own apartment. He can thank the government, which – in an effort to tame soaring property prices – has prioritized the construction of subsidized apartments. Sky-high property prices have especially squeezed low and middle-income residents in Beijing and other large Chinese cities.

In order to secure one of the subsidized apartments, one must either meet a long list of criteria, or else "know the right people," says Xin. Or else, as in his case, get really lucky. A 39-year-old single man with no children, Xin was hardly an ideal candidate, although his income level is just under the maximum allowed (about $13,800) for people hoping to benefit from the "affordable accommodation" policy.

The downside of his new housing arrangement is that he'll soon have a hefty commute – about an hour on public transportation in each direction. But for Xin, the opportunity to finally buy property makes all the travel time worth it. In Beijing, the average housing price per square meter is as high as $2,000, according to the government. That's far beyond anything Xin could normally afford. "Few teachers can actually afford to buy an accommodation inside the fourth ring road" periphery. In Tougzhou, his new neighborhood, the housing price per square meter is about $1,250, but thanks to state allowances, he only has to pay $780.

Rising demand

In March, the Chinese government announced plans to build 36 million subsidized apartments before 2015, including 10 million this year. It was supposed to be one of the cornerstones of China's 12th five-year plan, which focuses on the people's "happiness' and promised state aid to ensure "accessibility" for 20% of the country's housing. Since then, however, the government has already narrowed the scale of its ambitions. It now hopes 4 million units will be built by the end of October.

Real estate developers are dragging their feet, due in large part to a combination of economic problems that have appeared of late in China. Inflation is high, austerity measures are more and more the norm, and credit is scarce. Although China did announce that it would spend roughly $200 billion on subsidized apartments in 2011, the central and local governments are only expected to give out approximately $80 billion of that sum.

The rest will have to come from banks, real estate developers and private owners. Which why "quality is not always there," according to Xin. "Construction companies earn little with these projects, so they don't always do their best."

In times of economic belt tightening, banks have fewer assets on hand and therefore are more hesitant about lending money. As for local governments, they usually prefer to set aside their land for more profitable housing projects.

In March, the government warned that officials who would not work towards this common good would have to pay the consequences. China's minister of housing didn't mince words when he stated that low-priced housing "is not an economic mission, but a political duty."

Public demand for these subsidized apartments is high. Once the eligible candidates have been selected, the administration still needs to assign the apartments by lot. The winners then head to the sales office where they pick which accommodation they want "by order of winners, so the choice is limited," according to Xin.

Although he usually teaches French, Xin also has an opinion on the economy: " The market doesn't regulate everything, and even though China's economy has been rather healthy over the past few decades, the government still needs to help those who were left aside, so that the whole population can benefit from such a market. "

Read the original article in French

Photo - Keemz

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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