China’s real estate market, especially in major cities, seems to be increasingly out of control. Soaring prices make home ownership unaffordable for many and show no signs of slowing down their upward climb, even in the midst of a global recession. In this Feature Service article, Catherine Tai, Asia Program Assistant at CIPE, examines the reasons behind this distorted real estate market and talks about its intricacies.
What makes the Chinese property market complicated and prone to speculation is the fact that individuals and firms cannot fully own land but merely lease it from the government. “Informal arrangements, promises, and assumptions are a poor substitute for the secure property rights that are the hallmark of a genuine market-based economy,” she concludes.
Article at a Glance
- China’s soaring housing prices appear largely disconnectedfrom economic rationality; housing prices in coastal cities are 20 times the average household’s annual income, effectively pricing the average Chinese citizen out of the housing market.
- Primary culpability for distortions in the real estatemarket lies with three interconnected players: wealthy investors, complicit local governments, and predatory state-owned enterprises.
- The root cause of China’s real estate problem lies in the country’s absence of genuine property rights, which the government substitutes with manipulation-prone land use rights.
Published Date: September 08, 2010