Despite the global economic downturn, some markets are still showing remarkable growth. The Chinese real estate market is one of them, despite what some would tell you. In fact, it has grown at such an incredible rate that the government taken steps to control it and ensure its sustainably.
Local property developers have noticed that this trend seems unlikely to stop anytime soon and have adapted.
China has been instrumental in shaping global trends for a while now. Therefore, it would come as no surprise to many that the Chinese real estate market is huge and is still growing at a rapid pace. Some believe that this could lead to a bubble that will eventually burst and take the world economy down with it too.
However, many local experts and analysts think that a Chinese real estate crash is virtually impossible. This is due to several reasons but the main one is that in a state-controlled economy, the Chinese government would never allow it to happen.
China Can’t Afford a Property Crash
The Chinese government is at the helm when it comes to the nation’s real estate market. They have control over the supply of new land for construction, financing for development, mortgage policies, tax rates, as well as house purchasing restrictions that they are able to use like a thermostat to heat up or cool off the market at their discretion.
Readers may now be asking why is the Chinese government so involved in the property market when it has tried to move the country from a government controlled economy to a free economy model. The reason is simple. It is because the Chinese real estate market is just too big of a risk.
To put things into perspective, the real estate market comprises 15% of national GDP, 15% of fixed asset investment, 15% of urban employment, and 20% of all bank loans, according to the IMF. Therefore, with such significance, this won’t be something the government will leave to the free market – at least not for now.
Beijing to the Rescue?
Over the years, the Chinese government has taken a variety of actions to keep the market in equilibrium. But recently, the market has been on the rise despite the government’s cooling measures. This continued increase has forced local property developers to adapt to keep their businesses healthy.
A few weeks ago, authorities in Shanghai, Shenzhen, Wuhan and Nanjing tightened home purchase policies in order to rein in surging property prices.
An executive of one of China’s top property developers admitted that he did not expect prices to still be rising in first-tier cities. The two reasons behind this are the huge demand for new homes as well as the increased purchasing power.
A Guangdong-based property developer, Evergrande, which also happens to be China’s third largest developer, is planning to add more first and second-tier cities to their portfolio.
For the most part, developers say that they are excited about the prospects in first and second-tier cities, and that they are looking to potentially divest their projects in the lower-tier cities in spite of the government’s effort to nurture these housing markets.
In short, the real estate market in China is still on the rise with the government being a major part of the reason. This unexpected rise in prices has also affected the developers significantly and they are now focusing more on first and second-tier cities, such as Shanghai, Beijing and Shenzhen, to fully benefit from this.