China's real estate sector has been a significant pillar of China's economy for the last decade. Demand for new houssing has been very strong in major cities as rising incomes has led to a desire by many people to upgrade their housing. This coupled with massive urbanization which has occured in China over the last two decades has created an ever growing need for ubran housing. These two factors combined with the fact that Chinese have seen the real estate market as the best place to park their savings over the last decade, especially in high end real estate, has help drive the boom in the China's real estate market.
In 2001 the Chinese government rolled out a range of favorable policies to open up the real estate industry so that it might function as a backbone of China's economy. In 2001 investment in real estate totaled RMB624.5 billion, or 17% of aggregate fixed asset investment. This amount and percentage rose to RMB71.8 trillion and 25.3% respectively 2012.
Over the last 10 plus years since the real estate market in China has been opened up has seen soaring home prices as a result of enormous demand coupled with the break neck growth of China's economy and rising wages. For example, home price were on average RMB3,326 per square meter in Shanghai in 2000; they surged to RMB6,385 per square meter in 2004 and well beyond RMB20,000 per square meter in 2012. This has led to a great amount of concern by policy makers and economists because the price of a regular 90-square-meter unfurnished apartment would be 40-50 times the average annual salary of an average Shanhgai resident. While home prices have not only soared in Shanghai but in other major cities as well, but despite this average home prices per square meter in China's 100 largest cities averaged a more reasonable RMB8,700/square meter in 2012.
To rein in the overheated property market, the government has introduced a set of policies, such as limiting the number of homes an individual or household can buy, lifting discounts on mortgage interest rates and imposing property taxes on luxury homes in some cities. The policies have worked to some extent, but it is argued inelastic demand, due to rapid urbanization and a cultural tradition which emphasizes the importance of owning one's own house or apartment when getting married, will keep the industry booming in the long run.
China plans to build 36 million apartments for low-income earners in the five years through 2015. These cheap apartments will be rented or purchased far below market prices. However, the funding of the construction and the transparency of applicant assessment have faced widespread questions and concerns.
Key facts for china's real estate market in 2012:
- Investment in the property market grew 16.2% to RMB7.18 trillion, where investment in residential properties was up 11.4% to RMB4.94 trillion accounting for 68.8% of total investment.
- Floor space started building fell 7.3% to 1.77 billion square meters, including 1.31 million square meters of residential space, down 11.2% from 2011.
- Floor space built grew 7.3% to 994.25 million square meters, including 790.43 million square meters of residential space, up 6.4% from 2011.
- Overall property space sales grew 1.8% to 1.11 billion square meters, including 984.68 million square meters of residential space, up 2% from 2011.
- Property sales revenue grew 10% to RMB6.45 trillion, including RMB5.35 trillion from residential space, up 10.9% from 2011.
- Banks lent RMB1.35 trillion to the property market, including RMB960 billion in personal mortgages, taking the outstanding amounts to RMB12.11 trillion and RMB8.1 trillion respectively as of the end of 2012.
- Land price averaged RMB3,129 per square in Q4 2012, where the price of land commercial, residential and industrial development was RMB5,843, RMB4,620 and RMB670 per square meter respectively.