Saturday, October 13, 2012

13/10/2012: China's Property Bubble

Some interesting insights into China's economy dependency on property markets from the ECB Monthly Bulletin (link: Italics are mine:

"Housing investment has been an increasingly important source of growth for China in recent years". Most notably:

  • Real estate investment accounts for about 25% of total fixed asset investment, with the latter having driven 50% of GDP growth since 2006. So overall, over 12% of China's economic expansion is now due to property boom directly. Associated activities, e.g. construction, construction materials, banking services and planning & development services probably means that good 17-20% of the overall growth in China since 2006 has been due to the real estate investment boom.
  • "In terms of its share in GDP, real estate investment rose from 10% in 2006 to 16% in 2011".
  • "Construction and real estate services together employ over 10% of the workforce and contribute to 13% of total added value". 
  • "Real estate investment also has strong linkages to other industries such as machinery and equipment".

"House prices in China have risen sharply in recent years and are high compared with incomes'. 'High'? Judge for yourselves:

  • Average price per sqm of housing "across a sample of 35 large and mid-sized Chinese cities nearly tripled between 1999 and 2011, although this average masks great disparities." 
  • "The price of a 100m2 house expressed in multiples of the annual disposable income of an average family of 3.3 persons also varies widely, from 4.4 times yearly income in peripheral cities (Hohhot, Inner Mongolia), to close to 16 in large, booming cities such as Beijing and Shenzhen (see Chart A)."

  • "On average, the ratio fell between 1999 and 2011 as disposable income rose faster than the square metre price (11% compared with 9% annually – see the red dotted line in Chart B). However, when one considers the increase in the size of the average house, a different picture begins to emerge. Over recent years, living space has increased from an average of 19.4 m2 per capita in 1999 to 32.7 m2 in 2011,  while the average household size has decreased from 3.6 persons to 3.1, implying that the average house has grown from 70 m2 to 101 m2. As a result, the price of the average house (expressed in multiples of income) rose from 6.4 in 1999 to 8.6 in 2011 (see the blue line in Chart B)." 

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