Infrastructure boost

The government's heightened interest in infrastructure development will inevitably pave the way for more suburban housing projects targeted to the not so rich young professionals in the next couple of years.

Housing bubble or housing riddle? [CFP]

With the increasing de facto subsidy available from the government, investors would probably start losing interest in large units, especially the super-expensive ones, and opt for the smaller units in the most convenient locations instead.

This being the case, it can be said that the most effective mechanism to keep up some competition in a city's housing market is its growing mass transit system.

Chinese commentators often argue that housing prices in large cities are too high, almost unaffordable.

According to a recent report by the Beijing Municipal Academy of Social Sciences, the average new housing price in the Chinese capital city is 15,000 yuan per sq m, compared to the average local household's annual disposable income of 66,000 yuan.

That being the case, a 100 sq m unit would cost 1.5 million yuan, or an almost 23 years' income for an average household. By contrast, the report quotes the World Bank as saying that, ideally, the housing price should be just five times the household annual income.

But what the report failed to explain is why an average household must buy a 100 sq m unit.

It also failed to mention that in major cities in the world, it is hard to buy a new house for a price equal to a household's only five years' income. In Manhattan, it easily requires up to eight years', if not even more.

In Beijing, at least at the moment, there are new housing complexes in the suburbs that are selling at around 9,000 yuan per sq m. In Hebei developers are selling housing units priced between 3,000 to 5,000 yuan per sq m.

So an average Beijing household can buy a 70 sq m unit for the price of less than 10 years' income in the suburbs, and for less than five years' income in Hebei - as some people have in fact done.

At the same time, for relatively wealthy citizens, such as middle-level managers in some of the national industrial and financial companies, with monthly salaries exceeding 10,000 yuan, such an option looks feasible. If the husband and the wife are earning the same level of income (a very likely case in Beijing), then they can keep their annual household income close to 250,000 yuan including bonuses. If they choose to buy a 1.5 million yuan unit, the price is just six years' income.

So, depending on the individual income level and his/her preference, housing prices in China, except for the luxury-grade projects, are not as prohibitively high as many Chinese would like to admit, especially in the angry Internet forums or publications aimed at appealing to their sentiments.

Once a cross-regional social security system is in place, especially when people can transfer their medical care accounts across the nation, many retired people in large cities may opt to move to places with a better environment and cheaper daily supplies.

There are already cities, most noticeably Yantai in Shandong province, which are already marketing their local housing projects in Beijing, with senior citizens as their main targets.

(China Daily April 20, 2009)