CHINA TOPIX

03/28/2024 06:06:38 pm

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Housing Market is the Biggest Cash Cow of Chinese Government

China Economy

(Photo : Photo by Feng Li/Getty Images) The real estate market is one of the main forces behind China's economy.

In China, real estate is responsible for 15 percent of the country's gross domestic product (GDP), 15 percent of fixed asset investment, 15 percent of urban employment, and 20 percent of all bank loans, according to the International Monetary Fund (IMF).

One of the saving graces of China's housing market, no matter how heated it has appeared, is that home buyers have always been extremely under-leveraged. At 90 percent, China has one of the world's highest home ownership rates - but only 18 percent of the country's households have mortgages.

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At times, when housing is more or less trading at a sustainable rate, people buying their first property in China are required to make at least a 30 percent down payment, while their second home purchase requires 40-50 percent upfront, and any additional house after that must be paid for in full, as no financing is available.

The growth in the country's real estate sector has led to a rise in the construction sub-index in China's official non-manufacturing purchasing manager's index, which jumped 2.8 points to 58.0 in March. Home prices also rose on a monthly basis in 47 of the 70 largest cities across China, up from 38 in January, according to the National Bureau of Statistics. While prices declined in 15 cities and were flat in a further eight. This was the market's best performance since April 2014.

The property price increase will encourage more investment in the property sector. The rising house prices is also a good news for the steel and cement sectors and is expected to lead to a property investment growth of 4 per cent this year, compared to just 1 per cent in 2015. This more optimistic outlook for the housing market has lifted the iron ore price by 29 per cent this year to around $56 a tonne, according to Metal Bulletin.

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