My biggest issue with my local housing market is what you might consider a commercialisation of residential real estate. Property prices don't reflect their value as places to live and their location, but rather their ability to be a vehicle for investment income. High rent ensues and yet the lower demand for those properties as rentals doesn't deter the property prices from rising. Currently there are a handful of almost completely empty apartment buildings in the CBD.
People can't afford to rent or buy them yet they still move about the property market.
At some point they will surely come back into circulation at a price that makes sense for individuals, that is of course if they aren't all owned entirely by corporate scale landlords with bigger pockets.
Rents are pretty low in china relative to sale prices. In Beijing at least, you'll pay around $2k for something that costs a million to buy; I'm guessing Shenzhen is similar if not as bad. It isn't worth it for speculators to rent as renovations reduce value; apartments are bought unrenovated only, all previous owner renovations have to be torn out because no one likes or trusts other people's renovations. So a lot of empty apartments are waiting to be flipped, but, even though prices are sky high, sales volume can be very anemic.
> yet the lower demand for those properties as rentals doesn't deter the property prices from rising.
this is an interesting phenomenon, because it's the same mechanism (imho anway, as an armchair economist) as gold prices rising during uncertain times. The actual use of gold is little to none, and yet, as a store of value, everyone in the society agrees on its stability/valuation, even in times of gov't hostility.
If you look at property this way, chinese speculators are using the same line of thinking - where they actually don't want the apartment to be rented out (and thus, look/feel 'used'). The price reflects not the utility, but as a store of value.
I think the fundamental reason this is happening is that the chinese do not trust their own gov't enough to store their assets in a more liquid form. Or, perhaps there's really no other forms of storage that's not risky. And those who can't bring their currency assets out of the country then must choose real-estate.
> I think the fundamental reason this is happening is that the chinese do not trust their own gov't enough to store their assets in a more liquid form.
Not really, it is as simple as "It is more profitable and equally risk-free to buy house than letting money rot in the bank."
People are still rushing to buy whatever government bonds as soon as they are available, because they pay good interests and are less risky. People in China are driven by pragmatism more than loyalty or distrust in the government.
You can see the utility as a store of value in international investment properties too. A part of the problem driving prices up in my locale. Chinese and other international investors seeking to store wealth will purchase properties here, and they will pay prices that the local market wouldn't. That drives the prices up, as locals with property want a piece of that international cash. Meanwhile the property can go underutilized and the community it is in gains nothing.
> Meanwhile the property can go underutilized and the community it is in gains nothing.
but what doesn't make sense to me is why not build more property to sell?
The money the original owners got for selling must be circulating somewhere, which means a boost to the local economy, which means they should have money to invest in new development.
>I think the fundamental reason this is happening is that the chinese do not trust their own gov't enough to store their assets in a more liquid form. Or, perhaps there's really no other forms of storage that's not risky."
Leaving your money in a bank, the most liquid way to store it provides almost no appreciation on that asset. I think the Chinese put their money into real-estate for the same reason other people do - because it's seen as a good investment:
> I think the fundamental reason this is happening is that the chinese do not trust their own gov't enough to store their assets in a more liquid form.
nonsense. check the total amount saved in state owned banks. or check how many seconds it takes to sell government bonds.
I live in a complex in Shanghai where the rent for a 2bed 1study apartment without car parking is $3.5k USD. The yield is extremely low as that property would cost you $3m including taxes/fees to buy. Because the rent is so cheap compared to the cost to own, I saw people trying to rent but couldn't get any unit for months all the time. Low demand?
Just curious are you an expat there? If so what kind of work are you doing and what sort of compensation are you looking at (if you don't mind sharing)
People can't afford to rent or buy them yet they still move about the property market.
At some point they will surely come back into circulation at a price that makes sense for individuals, that is of course if they aren't all owned entirely by corporate scale landlords with bigger pockets.