Introduction to the Chinese Mortgage Market

December 14, 2020
Antonio Flores

Over the past 30 years, the Chinese economy has boomed. Hundreds of millions of Chinese were lifted from poverty, as the USA shipped the majority of manufacturing overseas after its main geopolitical rival of the USSR was defeated. Accordingly, Chinese people are currently able to enjoy far greater standards of living than their ancestors. 

One major aspect of this is that homeownership is far more common among Chinese now than before. Over 85% of Chinese now own their residence, compared to 60% in the US. It is important to distinguish that technically, in China, there is no private ownership of land due to the Marxist economics of the ruling Chinese Communist Party, and that “ownership” refers in fact to 99-year leases on land. Property values are accordingly calculated based on the number of years left on the lease. Moreover, “ownership” includes people who own moveable living pods and rent out land on which they stake out their pod, which is their equivalent of trailer living and is quite popular among migrant workers.

Property values in China have increased threefold between 2000 and 2020. Many Chinese cities are famously crowded and do not have much room to put enough housing for everyone there. The pressure is somewhat limited by the hukou system of internal passports: many Chinese citizens are not allowed to go to the city, which limits the amount of crowding. Since there are 1.4 billion people in China, these measures, though they restrict freedom of movement, are understandable, as Chinese cities are already some of the biggest in the world, and do not want to fill up with hundreds of millions more people. 

In addition to this, one result of the CCP’s combination of centrally planned urban design and state capitalism is that there are large cities built by the government that lie almost entirely empty. For example, the town of Kangbashi in Inner Mongolia is meant to hold 1 million people and have 300,000 by 2020, but only was able to attract 100,000 inhabitants. The offices and apartments lie almost completely empty, having been constructed but never used. 

To conclude, China’s massive growth in prosperity and wealth has resulted in great changes relating to the property and mortgage market there. Chinese law and society are very different from the West, and accordingly have created a different system of property management to suit the current system. It will be interesting to see how the system further develops as China further urbanizes and evolves. 

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