Pudong House Price Rise Sharply

By Jian Shuo Wang on 2009-05-16 22:10 · Shanghai Apartments

During the Spring Festival early this February, the apartment near where we live was about 13,500 RMB per sq. meter. To put it into perspective of US standard, you can safely assume it is a 100 sq. meter house with 2 bed rooms, one living room, one dining room, and it costs 1,350,000 RMB.

Today, we find out the price has raised to 17,000 RMB per sq. meter, based on real transaction price. The same apartment of 1.35 million RMB is now 1.7 million RMB, 25% increase in a very short period of 4 months.

To further put it into perspectives, it is at the deep bottom of the world financial crisis, and spreading real estate crisis.

Why This Happens?

Disclaimer: I know nothing about economics although I have a wife whose second major is Technical Economics. :-)

I guess this happens because of the relaxed financial policy the central government put into place. The house agents are pretty sensitive to any policy that affects their business. They said, they can settle all finance related requirements for you if you want to buy a house. For example, they can help those who cannot get mortgage to get it, and they can get 80% of mortgage amount of a house for people who already have many apartments. The previous policy set very high bar for these type of risky borrowers.

That obviously works. When the buyers have financial lever to make the purchase, the house market is activated, and ridiculous thing like 25% increase in 4 months happens.

11 Comments
in some ways, chinese economy is still insulated from the rest of the world. we have experienced a sharp increase of room reservations since April, many of which are from domestic customers.
— JiaJia Sunshine · 2009-05-17 01:23
"they can settle all finance related requirements for you if you want to buy a house. For example, they can help those who cannot get mortgage to get it, and they can get 80% of mortgage amount of a house for people who already have many apartments. The previous policy set very high bar for these type of risky borrowers. That obviously works. When the buyers have financial lever to make the purchase, the house market is activated, and ridiculous thing like 25% increase in 4 months happens."

Hmmm, this was exactly how they started the Subprime Mortgage Crisis mess in US :-)
— JH · 2009-05-17 04:15
Right. That is very like that. However, this is the "over-reaction" of the dry-up of credit, and they used the policy to encourage people to buy now, to avoid current problem, although this is just to defer the problem to the future.
— Jian Shuo Wang · 2009-05-17 13:24
i just sense the danger is coming. maybe i'm over-reaction, maybe i'm paranoid.

subprime happens because wall street have way too much money to spend. The same happens in China, the gov. have way too much money to spend (and so does the state-owned bank). Unlike Wall Street though, the gov. has unlimited resource of money, they can create liquidity, they can *print* money. (or in modern world, they don't even print it, it' just a matter of changing some data on the computer).
— cookie · 2009-05-17 14:11
Crazy ! at that price ? the salary are so low in China yet houses are so expensive !
— kbguy · 2009-05-18 07:52
During the past years, we've heard warnings of collapse many times and none of them materialized. With so many pessimistic prediction proved to be wrong, people tend to get overly(maybe rightly as well) optimistic. Even hardcore pessimist like me started to doubt my judgment.
— xge · 2009-05-18 10:42
The topic relating real estate price trend in Shanghai or other cities could sitll be good one.

As anyone can see, China government must have done something to help such real estate companies out of finance problems like banking mortgage.

As the unit price have obviously exceeded what we expected and what we can afford, we still can't see the perspective of price down.

The answer I guess includes such:

1. Cost. Inlucding construction cost and darkside cost. The basic cost must consider the sum as tatal.

2. You can't low price now sharply. If you try to do this,that will lead "domino effect",which will first crunch real estate companies, then banking, then many workers lost their jobs in the system. All is down at the end.

__________

END
— 基德制造 · 2009-05-20 12:02
What is the median salary in Shanghai? I think the median is around 11,000 HKD per month in Hong Kong. A 10 sqm apartment like this would cost something like 5M HKD there, or 455 times median monthly salary.

I live in London now. The median salary is like £2600 gross per month, but tax and NI would cost about 25% of that, so net earning may be about £1950 per month. An apartment like that would cost you about £500k i.e. 256 times median monthly salary.

Apparently people living in London are a little better off than those in Hong Kong. What is the situation in Shanghai?
— one · 2009-05-23 21:46
The average salary in Shanghai can be very low. The average annual salary is 17764 RMB in 2001 [1], which is just 1480 RMB/month. I guess these days, it is higher, and should be something around 2000-3000 RMB per month. Using the same calculation, a 100 sqm apartment costing 2 million is 1000 times of average monthly salary in Shanghai.

[1] http://www.smhb.gov.cn/website/b/32051.shtml
— Jian Shuo Wang · 2009-05-23 22:20
A nice video explaining what happened in US ( and what will happen in China?):

http://vimeo.com/moogaloop.swf?clip_id=3261363&
— JH · 2009-05-29 04:03
Wow these are getting expensive. I am living in Boston and I thought these rents were crazy, come to find out it like this in cities all over the world.

Makes me feel a little better I guess...
— Luxury Boston Apartments · 2009-06-20 02:01