Op-Ed Contributors

Everyone, it's OK to rent

By Shujie Yao (China Daily)
Updated: 2010-05-04 07:58

Nation must shed traditional thinking that affordable housing can't be rented and establish a commercialized leasing system

The central government has issued a series of regulations in recent months aimed at cooling the country's frenzied property market, each more aggressive than the one before.

The latest moves - an increase in down payment ratios and the suspension of mortgage loans for third-home buyers - prompted many commentators to declare the authorities had finally signaled their seriousness in bringing down soaring house prices.

No one questions the government's sincerity; it is the potency of its measures that is in doubt. The optimists underestimate the distance between the housing market and the central government's fingertips.

Make no mistake, this housing bubble is real and is set to burst within two years, erecting a sizeable stumbling block in China's path to industrialization.

Compare China's property prices to those of developed countries and the true severity of the situation hits home.

An apartment measuring 100 sq m located outside Beijing's Sixth Ring Road costs more than a million yuan. The average household income in Beijing is 65,000 yuan per year. The calculation is simple yet damning: Home prices are 16 times that of household income.

In London, the average price of a house is 250,000 (2.5 million yuan) and the average household income is 60,000 - a little over four times less than the average house price. Travel north in the United Kingdom and the price for a 100 sq m apartment is lower in absolute value than a similar property in a medium-sized Chinese city. Yet China's per capita income is one-ninth that of the UK.

House prices in China will continue to advance due to several factors. Demand will remain high as rapid urbanization continues apace. The urban population is rising by about 3.5 percent a year as rural workers flock to the major metropolises, creating lopsided urbanization patterns and exhausting limited supplies of affordable housing.

The government is aiming to increase the floor space entitled to each urban resident to 35 sq m by 2020. Our most sanguine calculations show that this target cannot be realized until at least 2025. As long as the most basic living requirements are not satisfied, demand for housing will keep on rising along with house prices.

Demand is also linked to the Chinese psyche. An apartment is not simply a place to live but a symbol of social status and wealth. There is a great reluctance to rent housing, reflected in the fact that private homeownership in China was among the highest in the world at 82 percent in 2008, compared to 41 percent in Germany and 69 percent in the United States.

Government officials and profit-driven developers will not change their minds overnight. Local authorities have long acted to bid up land sale prices and accelerate farmland transformation to boost revenues. Around 40 percent of local government revenues come from land sales.