Hot Real Estate Market Has China Worried

A luxury villa i i

A luxury villa in Sheshan, outside Shanghai, in a development where the average price is $463 per square foot. Louisa Lim, NPR hide caption

itoggle caption Louisa Lim, NPR
A luxury villa

A luxury villa in Sheshan, outside Shanghai, in a development where the average price is $463 per square foot.

Louisa Lim, NPR

China's Real Estate Shift

In 1992, individuals in China were allowed to purchase homes for the first time. Before then, urban residents lived free or paid nominal rent for government-assigned housing. In 1998, the Chinese government stopped providing apartments and permitted state workers all over the country to buy their own apartments on the real estate market using government subsidies or bank loans.

 

Housing prices in 70 major Chinese cities rose 5.6 percent over the past year. More than 70 percent of Beijing residents have bought one or more pieces of property.

 

In an effort to cool the real estate market, the government has increased the minimum down payment required to 30 percent from 20 percent (for residential units larger than about 970 square feet).

 

And there's a 5.5 percent sales tax if a property is sold within five years of purchase — up from two years previously.

 

Sources: Xinhua, State Development and Planning Commission, USA Today

Saleswoman Karen He shows a washbasin  decorated with 24-carat gold. i i

At a luxury villa in Sheshan, outside Shanghai, saleswoman Karen He shows a washbasin decorated with 24-carat gold. Louisa Lim, NPR hide caption

itoggle caption Louisa Lim, NPR
Saleswoman Karen He shows a washbasin  decorated with 24-carat gold.

At a luxury villa in Sheshan, outside Shanghai, saleswoman Karen He shows a washbasin decorated with 24-carat gold.

Louisa Lim, NPR
Annie Xia and Sam Hu in their apartment i i

Annie Xia and Sam Hu saw the value of their apartment in Shanghai's outer suburbs drop by one-third after the government imposed a sales tax and other measures to thwart speculators. Cherry Huang hide caption

itoggle caption Cherry Huang
Annie Xia and Sam Hu in their apartment

Annie Xia and Sam Hu saw the value of their apartment in Shanghai's outer suburbs drop by one-third after the government imposed a sales tax and other measures to thwart speculators.

Cherry Huang

China's booming economy is in part due to its soaring property markets, which economists say make up one-third of that country's gross domestic product. In Shanghai, property values have risen 300 percent in three years, pricing many out of the market. The government is trying to cool the sizzling market, but not everybody's happy with its moves.

In a luxury development outside Shanghai, 10 villas have sold at an average price of $463 per square foot. But the central government has forbidden the release of any more land for luxury villas, instead ordering cities to allocate most of their land for small apartments. It's an attempt to cool runaway property prices.

Public dissatisfaction is rising, as more and more people are priced out of the market, and interest rate increases mean homeowners are struggling to pay their mortgages.

Zou Tao, a businessman and consumer advocate in the southern city of Shenzhen, started an online campaign encouraging people to stop buying apartments for three years in a bid to bring property prices down.

"The market's artificially high," he says. "A lot of unscrupulous developers, middlemen and speculators have got together to push prices up. Normal people's resentment and hatred is growing."

Zou says he has collected 200,000 signatures for his campaign. But he has also attracted official attention. Zou was barred from leaving the country and he says his company was forced to close and that his movements are monitored. But he believes the local government's scared of him.

"Local governments sell land at high prices, then depend on the tax revenue from land use for financing their costs, and GDP growth," Zou says. "So my boycott goes against their interests, and could even affect the careers of local officials, so they want to stamp me out."

Certainly there's plenty for China's leaders to worry about. As property markets spiral ever higher, the danger of a bubble increases. And a property crash could explode the mirage of China's rapid economic rise.