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Winter is Coming for China’s Housing Market

Last Updated: Wednesday, December 06, 2017 - 15:51

Even though China is categorized as a developing country, its homeownership rate is already far higher than that of developed Western countries. According to Western media outlets, many developed countries have a family home ownership rate of less than 50%. In China that number is over 80%, and amongst China’s wealthy elite the rate is even higher. But now the market seems to be undergoing a cataclysmic shift. Buyers are now more focused on buying homes as place to live, rather than as a financial investment. For many market observers, this shift signals the beginning of a market downturn.

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Even though China is categorized as a developing country, its homeownership rate is already far higher than that of developed Western countries. According to Western media outlets, many developed countries have a family home ownership rate of less than 50%. In China that number is over 80%, and amongst China’s wealthy elite the rate is even higher. But now the market seems to be undergoing a cataclysmic shift. Buyers are now more focused on buying homes as place to live, rather than as a financial investment. For many market observers, this shift signals the beginning of a market downturn.

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In France, as a comparative example, the housing market is fairly mature. About 59% of the population live in a purchased home, 30% live in a rented house, and 6% live in affordable housing. According to a recent survey, there is no widespread preference for renting or buying.

But this is not the case in China. The idea of buying a home is deeply rooted in the hearts and minds of the people. Employees work and save money for the sole purpose of buying a house, and many feel there is no better place to spend their money. Soaring demand has directly led to a rapid spike in housing prices, which in turn has only brought on a vicious cycle of buying more and more and more.

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Those who have property hope that the prices will go on indefinitely, while those who do not own a house hope that there will be a sharp drop in housing prices. No matter how the market develops in the future, some people will benefit and some people will not. It’s a zero-sum game.

Some senior industry insiders have said that mature real estate markets are those that hold ownership and renting on more equal levels. When these two sectors are working in parallel, the system is better equipped to contain speculation while also functioning to resolve the basic need for a roof to live under.

Now, there is growing support towards the development of China’s rental market. This shift will reduce the risk of a housing bubble. It will also make homes a place to live again and distance them from their image as a luxurious investment asset.

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Senior market observers have analyzed the market to predict what form this market turn will take. After all, if winter is coming for the real estate market, it might be a good time for investors to sell. But some commercial properties, such as SOHO Plaza, are difficult to handle on a more short-term basis and the profit margin is very low. The current market for such heavy turnover is not very impressive since the only way to raise rent is by constantly optimizing the management and quality levels.

Based on several media reports that have emerged in recent years, there is not much interest in developing this portion of the market. In Shanghai, where the cost of renting is always rising, many private companies simple cannot afford to rent such a high-end office to do business in. Many international first-class office spaces are currently vacant. Between property management costs and maintenance fees, there is no profit.

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So, for those who are looking to sell a property like SOHO Plaza, it may be better to quickly withdraw investment and then redirect that money into other cities with more growth potential. In the long-term, it would be better to further develop the rental market to increase profits.

Maxviewrealty, as the historic Shanghai real estate agency, has rich experience and advanced processes in housing rent in Shanghai.