House of cards: the Beijing property market
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.