House of cards: the Beijing property market

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By Andy Scott

Just how sustainable is the property market in Beijing? Rental and sales rates have gone through the roof in the past two years and only look to go higher as the Olympics nears. Land owners have already pushed the average rental rates 10 times more than normal. Don’t expect it to last. And come August 25, anyone looking to pick up cheap property will need only to throw a dart at a map of the city to find available real estate.

Like Athens, Atlanta and Barcelona, housing prices have risen in the seven-year run up to the Olympic Games. For other host cities, these trends quickly became unsustainable once the crowds, media and athletes went home. Athens in 2004 and Montreal in 1976 both accrued substantial debt once their Olympic torches went out, Beijing may as well.

The property market in China already exists inside a bubble. When the Games end, Beijing won’t see a slight post-Olympic economic downturn like many other host cities have had, it will see a complete melt down.

As the South China Morning Post reported:

The central government-controlled Beijing Olympics Economic Research Institute sounded a similar warning in June, forecasting home prices in the city were likely to fall after the Olympics.

“The property market has been overly optimistic in [assessing] the positive impact of the Olympic Games,” it said in an 85-page report on the games.

The hospitality industry will be the hardest hit as a pre-Games building bonanza has increased the number of hotels in the city to over 125,000 alone, not to mention the retail shops and restaurants all gearing up to grab Olympic dollars. Once everyone goes home, demand will evaporate.

The only question is if this downturn will trigger a larger bust in Shanghai and Shenzhen – cities where property prices have outpaced even Beijing.

1 thought on “House of cards: the Beijing property market

    Chris Devonshire-Ellis says:

    I would concur with this view. The luxury end will be OK, but the normal 2/3 bed apartments are way out of whack. What should be more of a concern is the extent that people have gone to to get on the bandwagon – borrowing to the max, then re-borrowing from banks on the strength of the property to play the stock market. With a property bubble very much in evidence and the stock markets trading at 50 times earnings the entire house of cards can shortly come crashing down, and it seems there is little the Government can do about it – the government structure and involvement in Chinese commerce is part of the problem.

    Negative equity anyone ? Not a phrase heard very often in China yet there is so much debt swilling around. I suspect a huge test in keeping people happy will arrive on the governments doorstep when banks start to foreclose or go bust. The second decade of this century is not going to be a happy one for China. Hu Jintao’s “You’ve never had it so good” is going to look a little silly in 4 years, and betrays the lack of understanding at the top end of leadership about the severity of the financial problems that are looming.

    Me ? My mortage is fixed rate but still has 5 years left to go at Palm Springs. But I get calls every day from people wanting to act as my agent to sell the property. It’s gone up in value three fold, but it’s irrelevant, I still need somewhere to live. While my mortgage is managable I view it as a home not an investment, and it is a sign of mass naevity amongst the Chinese that they will gambe their house, put themselves massively in debt to play with Chinese shares. Securing your property ahead of other investments seems to have eluded the pysche of many Chinese, and they will unfortunately suffer for such reckless behaviour.

    I only know two things about economics, and it’s always stood me in good stead:

    1) Buy Low
    2) Sell High

    China is the opposite way around and has gone Buy High. Time to get out of all obligations, pocket the cash, and live in cheaper rented accomodation if you ask me. This is not the appropriate time for high value commitments.

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