House prices in some mainland Chinese cities have been sky rocketing in recent years. Experts say that if the price of houses continues to escalate, a situation similar to the real estate market in Tokyo will be repeated. That is, the price of houses will increase dramatically but will keep dropping in the long term.
“Economic Information Daily” reported that the average income per person in Beijing and Shanghai is not even one tenth of a person’s income in Tokyo. However, the price of houses in Beijing and Shanghai is not much different from that of Tokyo. The cost for a 100 square foot condominium (about 30 square meters) without any upgrades is over 2 million yuan (US$ 292,889). Using the average annual family income in those cities of 60,000 yuan (US$8786.9), the ratio for the price of a single house to income is over 30 times.
According to the expert quoted in the article, the average income per person in Beijing and Shanghai will take at least 15 years to reach Tokyo’s income level. In other words , the cost of houses in Beijing and Shanghai have already used up the projected price hike for the next ten years.
The expert’s analysis found the real estate bubbles in Japan belong to wealthy society bubbles. The economy of Japan is being dragged down by these bubbles as well. In general, China’s economy cannot be claimed to be “wealthy,” but if the real estate bubble in China even surpasses the bubbles of the real estate market in Japan, the calamitous consequence will be even scarier than what has happened in Japan.
Experts consider that China experienced a crisis in the real estate market before. The economies of Hainan and Hong Kong have also been dramatically dragged down by these bubbles in the real estate market.
Regarding the sky rocketing price of houses, the expert explained that mainland China is copying Hong Kong's pattern: once speculation drives land prices to an extreme, developers who can afford to buy the land will be fewer and fewer. Developers who get the land will generate a monopoly, and raise the cost of houses at will to gain huge profits.
Experts emphasize that with this dependence on irrational speculation, the price of homes and other real estate investments cannot make for healthy economic growth. It could also quite possibly harm the overall economy and society, undermining social prosperity. Thus, mainland China must not copy Hong Kong; otherwise it will bring disaster to Chinese society.
Read the original Chinese article.
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