The media lately have been buzzing with stories of the property bubble in China, noting the prices in “tier one” cities have risen nearly 34% recently. Clearly, that is part of the debt-fueled bubble in China that will inevitably pop. Or is it? Prices for new residential construction have boomed only in tier one cities. There is no formal definition for tier one, but it always consists of at least the four largest cities (including Beijing and Shanghai), with the two next two largest cities sometimes also included. As you can see, outside of the very largest cities, property prices have been much more subdued.

Also important to note is that not only do the Chinese save much more than Europeans or Americans, they save differently. One traditional store of value for Chinese people is real estate, often in the form of residential property. First time home buyers must have a down payment of 30%; for second and third homes, down payments are between 40-50%.

The reality of housing in China is complicated, and varies greatly by region and city. In tier one cities, there is the housing bubble created by rising prices, but there is also pent-up demand for more affordable “social housing,” as it is referred to in China.

 

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