TheEconomistJanuary 30th 2021 571L
ottery winnersnormally win money.
In China the big prize is being allowed to
spend it. Demand for new homes in good
locations is so high, and supply so limited,
that several cities use lotteries to allocate
them, some with odds as low as one in 60.
When his number was chosen, John Chen,
an engineer in Shanghai, had two minutes
to decide whether to drop 9.6m yuan
($1.5m) on a house. “It emptied my bank ac-
count. But I did not hesitate,” he says. Yang
Yang, a 38-year-old businessman in Hang-
zhou, lost out in three draws before finally
winning one last spring. “It was even more
nerve-racking than my university entrance
exams,” he jokes.
Even being able to enter the housing lot-
teries is a matter of good luck, because en-
trants must be registered as residents of the
booming cities, which places them on the
right side of China’s wealth gap. By con-
trast, large swathes of the country have the
opposite problem: overbuilt apartment
blocks, sputtering economies and few peo-
ple buying property. Hegang, a town nearthe border with Russia, briefly found itself
in the spotlight after homes there were ad-
vertised for just 20,000 yuan, less than the
cost of a square metre in Shanghai. It was
an extreme example of the glut of empty
homes in many small towns.
Similar splits are common around the
world, with prices high in large cities and
low in small towns. But the degree of the di-
vergence in China, multiplied by the sheer
size and growth of its market, means that
understanding property is essential if you
want to get to grips with what is happening
in the economy. Every year China starts
building about 15m new homes, more than
quintuple the amount in America and Eu-
rope combined. The property sector—both
the direct impact of construction and its
indirect effect on everything from concrete
to curtains—makes up a quarter of China’s
gdp. The financial implications are pro-
found, too. In 2021 Chinese developers are
on the hook for more than $100bn in bond
repayments, according to Moody’s, a rating
agency. For the world as a whole, roughly atenth of outstanding bank loans to non-fi-
nancial clients have gone to China’s prop-
erty sector, whether as financing for devel-
opers or mortgages for homebuyers.
One commonly heard view is that all
this adds up to a ticking time-bomb. And
some of the facts are alarming. Fully one-
fifth of Chinese homes are vacant, finds a
widely cited survey. Housing investment
equates to about a tenth of gdpannually,
higher than the prodigious levels reached
in Japan before its bubble popped three de-
cades ago. Debt has soared for buyers and
builders alike. Evergrande, China’s biggest
developer, has borrowed a cool $120bn, a
56-fold increase in the past decade alone.
Yet it is only fair to note that such con-
cerns are nothing new. As far back as 2009
Jim Chanos, a hedge-fund manager, said
China was “Dubai on steroids”, predicting
that its property sector would implode
spectacularly. Since then prices have dou-
bled, and enough homes have been built
for 250m people. The longevity of the boom
suggests that the market is more complex
than its depictions as a bubble suggest.
The main explanation for its suc-
cess—or, put differently, its failure to col-
lapse—is the skein of regulations aimed at
forestalling the prophesies of doom. Some
have long been in place, such as the rule
that down-payments for mortgages must
be at least 30% of the purchase price for a
home. With so much equity in their
houses, homeowners are strongly incen-China’s property marketThe great escape
JIANGMEN
Long seen as a bubble, China’s housing market now looks stable. Can that hold?Finance & economics
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