Great Expectations

Soaring prices have made some property developers rich. In 2006, 70 of China's richest 100 people came from the real-estate industry. But prices have also created some social friction. Millions of people can't even think of affording to buy, and many are being priced out of city centers. In Shanghai, where the average wage is $4,500 a year, the average price for an apartment downtown ranges from around $280 per square foot for a mass-market development to $560 per square foot in more luxurious complexes. Recently a petition calling on citizens to boycott major Chinese property developers found swift popular support.

Since 2005, the government has tried to cool the market by imposing restrictions on foreign investors, calling on developers to build more small apartments and making it harder to get mortgages for second homes. They've also banned new suburban-villa projects—single-family homes with up to 4,000 square feet of living space. Although that's nothing like the McMansions of the West, they're seen to have contributed to a 6.4 percent reduction in China's arable land over the past 12 years. Indeed, so great was official concern about potential public unrest over rising house prices that, for the first time since the late '90s, the government this year announced a new program of low-cost-housing construction to help low-income families find affordable accommodation.

Now though, the government finds itself under significant pressure to help protect the interests of developers. The market cooling measures of the past few years have gradually contributed to a slowing in price rises in some of the bigger cities—and equally significant, China's economy has this year begun to see the knock-on effects of the global slowdown. When Vanke, one of China's biggest developers, tried in August to lower prices of apartments in a residential development in Hangzhou, owners concerned about the effect on their property values attacked Vanke's offices. There's little evidence that Beijing's efforts to stimulate the market are having an impact, say experts. "Price-cutting by developers is so new that it's just raised the expectation of more cuts to come," says Crispin.

This situation has led to calls from some of China's major developers for the government to take measures to loosen restrictions on lending and cutting taxes to boost the market. In the past month, the government announced two interest-rate cuts and has lowered reserve requirements for banks. Some local governments have taken matters into their own hands. The central city of Xian, for example, is reported to be offering subsidies of 1.5 percent for all house buyers.

Some people, though, remain optimistic. Outside the housing fair in Shanghai, a man was handing out leaflets offering "houses with sea views" in the small coastal town of Weihai, in Shandong province. "The best choice for investment and retirement homes," said the brochures. The previous week, one of China's main news magazines ran a cover story on rising interest among China's wealthy in owning a holiday home: "The good life is just starting," proclaimed its headline, "one home is not enough." Whether China's rising real-estate values constitute a bubble, and whether the bubble will burst anytime soon, is still up in the air. But for now, China's homeowners are feeling little pain.

© 2008