China’s Real Estate Market: Carefully Managing a Revival

June 17, 2016 | By

Across the world, home prices have been modestly increasing since the Great Recession in the United States – which also impacted economies in Europe and Asia. As the International Monetary Fund reports in its regular quarterly housing research, however, global home prices edged downward in the fourth quarter of 2015.

In some instances, global housing trends have an impact on the housing market in the United States, as foreign nationals seek to buy into American real estate either as their primary residence, a residence for family members living or studying in the U.S., or as an investment. (The Home Story has covered these trends previously.)

Spurring Economic Growth

However, it is also useful to look at non-U.S. housing markets on their own merits. For example, China’s real estate market is a key piece of the global market, not only because of the size of China’s economy, but also because the government has focused heavily on investment, including in new building projects, to help its economy grow.

A recent article in the Wall Street Journal (subscription required) notes this has resulted in an increase in housing inventory.

According to the article, sales for the first quarter of 2016 were up more than 61 percent from the same period in 2015. These sales were fueled by looser lending policies and a lot of new construction.

Home prices are consistently higher in the large developed cities of Beijing and Shanghai, as well as in the coastal regions – which tend to drive most economic growth in China – than in the rest of the country, including the oil- and resource-rich parts of the interior region of China.

Regional Emphasis

China’s economic policy has focused on development in the coastal regions, where many high-technology companies have grown, and where a strong labor supply is required to sustain economic growth. These workers need a place to live, which has also driven a focus on residential building.

However, prices were up only slightly and, in fact, were almost flat. Housing is also making up a dwindling share of China’s gross domestic product (GDP), falling from 22 percent of the country’s total output in 2013 to just over 15 percent in 2015.

In addition, with China’s overall GDP growth falling slightly to 6.7 percent in the first quarter of 2016, Moody’s chief economist Mark Zandi suggests that “housing will not be a durable source of economic growth for the Chinese economy, at least not for the foreseeable future.”

Clearly, China’s economy (and its relationship to housing finance) is very different than that of the United States.

Many elements – including investment in housing – are still centrally planned. However, as the Wall Street Journal article states, possible weakness in China’s real estate market may force potential buyers to look elsewhere, including the U.S., to buy properties.

Source: “China Housing Revival Buffers Economy,” by Esther Fung, published by The Wall Street Journal, May 26, 2016.

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