China’s home prices have soared in recent years amid the loose monetary policy. While many argue that strong housing demand will continue to support high prices, that is not entirely correct.
Demand may still be robust in first- and second-tier cities, where there are a large number of migrant workers, but most residents in lower-tier cities already have their own homes.
Home ownership rate has already hit 95.4 percent, according to the data released by the Chinese Academy of Social Sciences, and 19.7 percent of households own more than one flat.
Currently, China has a total of 430 million households, and 4.6 percent or 20 million of them have yet to own a home.
On the supply side, the country has around 660.18 million square meters of housing inventory as of the end of May. Assuming the average home size is square meters, there are an estimated 6.6 million units ready for sale.
Yet most of the 20 million or so households who have yet to own a flat are probably coming from the lower income group, who can’t afford a home anyway.
Meanwhile, amid the tightened liquidity and rising mortgage rates, those who already have one or more flats won’t rush to buy another property.
What about upgrade demand? Compared with Hong Kong, the population density in China is a lot lower. China’s average living space per person was 40.8 square meters last year.
The average living space per person in urban areas rose 2.7 percent to 36.6 square meters from the previous year, while in rural areas it increased 5.4 percent to 45.8 square meters.
Most apartments have a decent size of 80 to 1,00 square meters. There are some divided flats but those are rare exceptions, meaning there is no imminent demand for upgrading to bigger homes.
As such, the so-called rigid housing demand may not be so rigid after all, which is why tightening monetary policy may have a significant impact on future housing prices.
This article appeared in the Hong Kong Economic Journal on July 7
Translation by Julie Zhu
[Chinese version 中文版]
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