As the equity markets in China cool down and the government devaluates its currency, the question everyone is asking once again is whether the property market in the country is headed for a decline. Some analysts believe that the days of boom are in the past. However, as buyers are being asked to put a minimum of 30 per cent cash as down payment, the risks of hitting a crisis seem somewhat low.
The housing market is one of the most significant elements of the Chinese economy. Unfortunately it is also one of the most misunderstood parts. The housing market plays an important role in the economy because construction as well as residential real estate together hold over 10 per cent of the country’s gross domestic product (GDP). However, it is considered to be a misunderstood component of the economy because very few observers have been able to fully understand the structure of the residential property market in China.
Most workers were allowed by the Communist party to purchase their government-provided housing at a high discount rate of the market value. The result was that the rate of home ownership in the country is presently among the highest in the globe – 89 percent as compared to the 64 per cent in both the United Kingdom as well as the United States.
However, this does not mean that people have fully sated their appetite for new homes. Since a major section of the homes are substandard, the demand for upgrading homes is also rather important. In addition, only 55 per cent of the country’s population falls under the urban category, which is projected to grow over the coming years. This in turn is fueling the demand for housing in China.
The fact is that while the days of boom in the property market in China are long gone, the mature market is still far from a crisis.