Things are changing in China. We’re about a quarter-way through 2016, and already trends are beginning to emerge in the real estate market of the world’s second largest economy.
Already the Chinese government has eased restrictions on investing outside of mainland China. That, coupled with concerns of an overheated Chinese housing market and low supply, is leading people to look elsewhere to invest. Canada’s stable housing market and low dollar make it an attractive place for investors to park their money.
For years many experts have been pointing to the Chinese market as a bubble ready to burst. But for more than a decade it has continued to grow, unfettered by the pitch and wane of the global economy. According to the IMF, real estate makes up 15 per cent of China’s GDP, 15 per cent of fixed asset investment, 15 per cent of urban development, and 20 per cent of all bank loans.
Indeed, there does seem to be a lot of interest in the market. According to Bloomberg, prices in the southern business hub of Shenzhen have surged more than 50 per cent over the past year. That’s the fastest pace since at least 2011. Meanwhile, Bloomberg paints a picture of Shanghai streets clogged with prospective buyers, police sent to the area in an effort to control traffic as people stammer to buy up property.
I’ve been visiting China for years and have a longstanding professional relationship with the real estate market there. Things have been changing in China, and I bet we’ll see many more in the months to come. Here are just a few of the things on the horizon.
Beijing by Mary Wong
Chinese society is changing, and there will likely be a period of adjustment.
China used to be very much a resource-based society, and now what’s happening is they're developing more services.
As the country rapidly modernizes, you’ll begin to see the growth of services for its citizens, things like access to television and cell phone providers.
The Chinese government is struggling to keep up with the demand for properties, which means we’ll see a lot more construction before the year is out.
When I was in China last we saw a lot of building going on. If you drive to the countryside, you'll see building after building being constructed.
Buildings in Shenzen by Nosha
The real estate market in mainland China is relatively young. There isn’t much history around buying and selling property. The government essentially owns everything and they allow a 50- or 60-year lease on properties. So the whole idea of trading real estate is very, very new. It’s not the same kind of market that we have here.
But as people become more accustomed to the notion of buying property, the process will become more sophisticated.
More Government Intervention
China’s government is very cautious about the housing market. With real estate responsible for so much of the country’s economy, it’s no wonder. The government is duty bound to oversee its management.
It’s not uncommon for the government to step in to cool down the market when things start to get too hot. And if there’s a cooling period the government will lift restrictions to boost demand.
You will continue to see that sort of intervention in the market, which is good for some and potentially bad for others due to the strength and power of the government. It’s feared by the general public because even people that are very wealthy could lose money if they find themselves out of favour with the government.
Hong Kong by Studio Incendo
Investment In Foreign Markets
The recent economic slowdown in China has fuelled interest in the real estate market. Many people see housing as a safer bet than the stock market at this point, and that’s bolstering demand for properties.
But it’s also contributing to the surge in Chinese investment overseas. In my experience with people from China, an economic slowdown will just force people to move their money out faster.
Even with restrictions on how the Chinese spend money outside of the country, people usually find a way around them. They're quite good at dealing with restrictions. Part of it is that they want to hide things from the government. They don’t want the government to know too much about them because the government is very powerful. So they’ve gotten used to hiding money.
Colourful Beijing by Nikolaj Potanin
Things are changing in Canada, too. The low price of oil and weak Canadian dollar are having a strong impact on the market. With more Canadians unsure about the housing market, analysts at PWC are already forecasting a rise in renters. It’s also becoming apparent that more Canadians are heading to the eastern part of the country.
But those same qualities are making it more attractive to buyers in places like China. Canada’s market remains relatively stable while its low dollar means prices are cheaper for many buyers. Demand for Canadian properties from Chinese investors will only continue through 2016.
It’s likely we’ll see many changes to things like services and regulations in China. But even when the economy appears to be on a down-tick, the country’s housing market remains strong.
The boom has been hardest in places like Shenzhen, where prices rose four per cent in January from the previous month and were up 52 per cent over the past year. Property values in the financial centre of Shanghai are up 18 per cent for the last 12 months, while Beijing has risen about 10 per cent.
Still, prices in smaller cities are slipping, though as Bloomberg points out, at a slower pace. Cities like Shenyang, where prices of new homes fell half a per cent in January were even looking at a zero down-payment mortgage policy. Though after some backlash the plan was abandoned.
Things are changing in China.