The fear of a real estate bubble in China is returning


Beijing, Erfurt Inequality in income and wealth is only as high as in China in a few countries. While more than two thirds of the Chinese have to live on just 120 euros a month, China’s capital Beijing has the highest density of millionaires in the world. The corona crisis exacerbates this inequality – and this is also evident on the real estate market. While people with lower incomes only buy the bare essentials, the rich of China go on a shopping spree.

“The epidemic has little impact on households’ willingness to invest in apartments,” says the latest China Household Wealth Index Survey Report from the Southwestern University of Finance and Economics in Chengdu and Ant Financial, operator of the Chinese online payment service Alipay. Households that already own property and families with multiple properties are even more willing to invest in housing at the moment.

After investments in real estate in China slumped in the first months of the year due to the corona crisis, the market is slowly recovering. According to calculations by the Reuters news agency based on data from the Chinese statistical authority, they rose by 8.5 percent in June compared to the previous year – in May it was still 8.1 percent. Housing prices are also recovering. According to the data analysis company CEIC, in June they were around 5.3 percent above the previous year’s level.

Especially in the metropolises, prices and demand are increasing. According to Chinese media reports, real estate transactions in Nanjing alone in the secondary market, on which the Chinese government has less influence, rose by more than 80 percent in June compared to the previous year. Shanghai saw a huge surge in luxury home sales in the first half of the year. According to a Beijing News report, 2,828 new residential units were sold at prices in excess of 100,000 yuan per square meter – an increase of 98 percent over the previous year.

Lively lending business

The willingness to buy is also reflected in the demand for real estate loans. “Household loans have been hit by the slump in consumption, but mortgage loans are still growing faster,” according to a recent analysis by the French investment bank Natixis. This also explains why the real estate market has recovered faster than other sectors.

To support the economy in the corona crisis, the Chinese government had instructed the banks to lend more. In addition, the refinancing for the financial institutions was made significantly easier, which led to more liquidity in the market. But now there are dark sides to this policy. The Deutsche Bank warned that a market environment like the current one has often led to overheating on the property market in the past.

The Chinese banking regulator CBIRC warned in mid-July that some undesirable developments had returned. China’s head of state and party Xi Jinping has repeatedly warned in the past about the rising house prices that houses are there to live in and not to speculate. It was of little use, also because measures at the local level sometimes did exactly the opposite.

Real estate prices in the metropolitan areas of China are now among the highest in the world. Residential real estate in big cities is unaffordable for the majority of Chinese. To prevent speculation with real estate, several cities such as Nanjing, Shenzhen and Hangzhou have recently issued new regulations.

Reluctance in offices

Not only the housing market, but also China’s commercial real estate market has grown enormously in recent years. While real estate service provider Cushman & Wakefield accounted for a transaction volume of 158 billion yuan in 2010, it will reach a new high of 278 billion yuan in 2019. For comparison: Buildings were traded on the commercial real estate market in Germany for 68 billion euros in 2019.


The proportion of foreign buyers has also increased recently. They represented almost 16 percent of purchases in 2019 and almost a third in the first quarter of 2020. By 2015, China’s real estate sector was on a negative list for foreign investors. Since then, it has become more accessible to international investors.

The interest in Chinese real estate has not changed significantly in the corona crisis, says Carsten Kebbedies. He buys, sells and manages real estate for the American investment manager Nuveen in the Asia-Pacific region. In China alone, the property portfolio of his portfolio is $ 1.5 billion. Kebbedies plans to continue investing in China in the future.

“We are planning additional investments in the Chinese market at short notice,” he says. Only the traditionally largest asset class of office property is currently viewed with caution. Office rents in Shanghai fell 5.4 percent year-on-year in the first quarter and 6.7 percent in Beijing. In Shenzhen, they even fell by 15.4 percent, an analysis by the real estate service provider JLL shows.

The markets were previously under pressure due to high vacancy rates. Corona has made the situation worse. How it looks after the pandemic is still completely unclear. A logistics property would prefer Kebbedie’s office buildings these days. Like living in a crisis, the type of use is a stable system.

More: German companies in China are concerned about the second half of the year.


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