It seems impossible for any rise in China’s GDP to avoid the inevitable comparison with the housing bubble. The threat of a hard and dangerous landing and fears of an undesired contraction of wealth have been eliminated, or at least postponed, and China is headed towards a vigorous growth rate that is higher than the pessimistic estimates that were further exacerbated by the international financial crisis. Nevertheless, the good news carries inside it a dangerous seed, the trap of the housing bubble as an unavoidable part of the economy. Housing prices have been on the rise for nine consecutive months in the 100 largest Chinese cities. The building boom picked back up after the credit freeze, much like in 2009 when government stimulus channelled Chinese capital towards construction. Fear of a bursting bubble is further confirmed by the geographic distribution of the increases. The great metropolises – Beijing, Shanghai, Shenzhen – are the ones that benefit the most, to the detriment of the second- and third-tier cities. Houses in the capital city have reached an average of 25,000 Rmb (more than €3,000) per square meter, a figure not too distant from major European cities. More important is the comparison with housing costs in other Chinese cities, which don’t come closer than 25% to Beijing. Land in the big cities can fetch up to six times their initial price, so it is no surprise that housing prices have risen exponentially and it now takes 40 years of income to pay for a 100 square meter apartment. Citizens that work for a living are increasingly forced to make sacrifices to pay back their mortgages. Modern Chinese vernacular has coined a new phrase for this phenomenon: fang nu, which translates as slaves of the house or prisoners of the mortgage. Both the old leadership and the new are aware that the higher prices are a symptom of the wider availability of credit, and as soon as the recovery begins to fade it will all fall down onto the housing market. This is the true problem that Beijing has still not been able to solve. Measures enacted have yet to prove sufficient to create a fair and equal market that can be controlled. A new series of provisions has been made to bring prices under control and limit real estate trading. There will be new taxes on down payments and mortgages on second homes in the cities that have seen the sharpest increase in prices, and the administration has also reaffirmed its intention to rigorously apply a 20% on profits from home sales, all measures to limit speculative investments. But any attempts at controlling real estate investments are destined to fail until the lending system is made more transparent and uniform. The State Council, Beijing’s chief administrative authority, has called on local administrations to be vigilant over trends in real estate prices. In doing so it has shown its own weakness, because it has been unable to impose its centralized decisions and is forced to ask its provinces to effectively cut off their own heads. Because to stop selling, subdividing, or building, is akin to killing the goose that lays the golden eggs.
