Tales of an Apartment Hunter (aka Burst Damnit, Burst!)

Another weekend just passed, for me, that means spending an inordinate amount of time dealing with despicable real estate agents and walking through some stranger's home for 5 minute only to be shocked and disappointed, shocked at the price, disappointed by the unimpressive home. I've made the mistake of giving out my number to too many agents, this has led to calls and texts at 7 am and 10 pm, often for apartments that are far outside my price range and in one instance, outside of Beijing.

The problem is that there is little governing real estate agents in China. Unlike the US, you don't need to be pre-approved by a bank before you start looking for an apartment. In fact, basically everyone with a job will get approved by a bank for a loan, part of why down payments typically start at 30% of the purchase price. To be a real estate agent in Beijing the basic requirements appear to be 1. that you are not from Beijing, 2. that you are young and have no other experience, and 3. that you are dumb as a bag of hammers.

As someone who has studied economics, I realize that it doesn't take an understanding of complex economic theories to understand supply and demand, which is all the current real estate picture in China is right now. Everything in my being says that this has to be a bubble, it has every sign of being a bubble, and yet it has been a bubble that shows absolutely no sign of popping anytime soon. It will also be interesting to see how the government reacts if there are signs that this bubble is starting to pop.

I'm looking at apartments that are in the 90-120 sq. meter range (around 1000 sq. ft), places that 10 months ago were going for RMB1.7 million that are now going for RMB2.2 million, a difference of around US$75,000. I've looked at places all over the city and even in the "suburbs" and have rarely found a place that I can be happy with. I understand Beijing is quickly becoming a major, international city, but even in a city like Chicago, US$300,000 will buy you a very impressive spot, probably in a nice, old building that you know will be standing in another 50 years.

That is rarely the case in China where you have to worry doubly about fears of faulty construction and fears of government requisition. I work among young Chinese who make a solid salary and yet many of them are in the "house slave" category. Who are all these people capable of buying US$300,000 places in China? Where do they come from? What do they do? And how in God's name do they do so without even taking out a loan?!?

Further, unlike the US where the suburbs are established, here you can save money buy looking for a place in the "suburbs" of Tongzhou or Shunyi or wherever, but you have to be worried about basic living amenities and the lack of restaurants, grocery stores, hospitals, etc. For those things, you'd have to wait 2 or 3 years, part of the reason the apartment is so cheap now. There is also the habit of "buying air", purchasing a place that has yet to be built, with no recourse when its move in date and you aren't satisfied with the construction.

The search continues, its an incredibly depressing process, one that hundreds, thousands of others go through every weekend around Beijing (many who I've probably seen) as apartment after apartment is viewed, each even more substandard than the one before it, all incredibly expensive. I hope this bubble bursts soon and things go back to being realistic. I can see how property in Beijing inside the 4th Ring Road would be an incredibly wise investment over the next 20 years (though foreigners can't legally rent their apartment), but for the time being, it seems the price is destined to come down.

Unless, of course, China can yet again find a way to defy all economic formulations and the price just continues to go up. If that's the case, where are all the "laobaixing" going to live?!?


Don Tai said...

The real estate climate in Beijing sounds quite risky. For sure the quality of building in China can be suspect at best and dangerous at worst. While it looks like a bubble that you would like someone to burst, also note that the Chinese Government has pumped significant stimulus cash into the economy, much of which was funneled into real estate. Therefore there seems to be excess investment money propping the situation up. When and if the bubble will burst is difficult to say.

b. cheng said...

It's a good point, though to kick start the economy, the government has been urging the banks to issue loans and its quite possible we're looking at a situation where the "house slaves" are living outside their means, though I totally agree with you, its difficult to say anything about the current situation, except that it's insane.

Thanks for stopping by!

zachary mexico said...

Great post.

I've often wondered what you put so eloquently: who is buying all of these apartments? How did they get the money?

Good luck with house hunting.

Anonymous said...

Thanks for this post. Are there really enough Chicago size salaries to afford Chicago style prices? I was always under the impression that while Chinese white collar salaries had grown they were nowhere near the level of those in Chicago. Is there enough wealth in the order generations to transfer to the twenty thirty something while collar workers especially men so they can buy their first apartment? I would have to imagine that there's a significant fraction of male white collar workers whose families are relatively poor and haven't been able to save these sums. Are they managing to find some way to buy or are they locked out from housing and marriage?

b. cheng said...

your book was very interesting, I appreciate you stopping by.

First, I'm solely talking about the situation in the capital, I can't speak for how things work in other cities. Plus, unlike a lot of Chinese, my own search is focused on 2nd hand housing as I'm scared enough of those buildings, I can't imagine buying a place that wasn't finished yet and hoping it will be well constructed. Prices for new apartments are cheaper, but in part thats because they are typically further outside the city.

As I said, I'm only talking about in Beijing and here people from all over China are buying places, not just locals. Check out most "luxury" complexes and at least 20% of the license plates will be from outside Beijing, with many being from Dongbei.

Salaries have gone up, a lot of white collars are making less than they would in the US, but not that much less and after the apartment, cost of living is a lot cheaper than the US. Further, there is no annual property tax, when you buy an apartment, there are some taxes you pay, but after that, the only thing you pay is the "building maintanence" fee (typically RMB2-10/sq m). Also, loans are incredibly easy to get (though they are getting harder), which is why the typical down payment is 30-50%. Most of all, the attitude is far different from the US, here its to buy at any cost, owning is much preferred to renting, especially if you're a male looking to marry.

Hehe, I'm trying to keep this short and its already gone on as long as the post. Of course, the above is why you have "house slaves" who are tied down to their mortgage and can't afford much else, though these aren't typically the white collar types.