Every time their government puts a new restriction on home buying, Chinese investors put more money in new apartments and homes. Some are certain that the government will prop up housing prices forever, some are scared that if they don’t buy now, they may not get a chance later. Investors in China are trapped in a TINA market, as in “There Is No Alternative,” to investing in homes. As Pei Zhiyong, a housing investor told the Wall Street Journal, “No other investment is as profitable as property. Stocks are too risky.” Lingling Wei and Dominique Fong report the excesses in the market:
With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.
Another article of faith is that the Communist Party won’t allow housing prices to collapse. “The government will spare no effort to make sure there are no big swings in the property market,” says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.
The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product, according to Moody’s Investors Service . It now accounts for almost one-third, reflecting both a dearth of other investment options and the petering out of manufacturing growth.
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Jeremy Jones, CFA
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