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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