The reasons of housing prices of China are high

13 Feb

China’s housing market has continued to boom alarmingly in the recent several years. The government has realised the seriousness of this problem and begun do some efforts to cool the prices. For example, Chinese government has increased the real estate transaction taxes and  limited the numbers and types of buyers. However, the results are not positive.

China 2nd hand house prices

According to the statistic from Ehomeday, the volumes of new home sales in Shanghai increased by about 26% to 3.10 million sq. m., during the year to Q3 2013. The average sales price rose by 5% y-o-y to CNY 24,258 (US$ 3,955) in Q3 2013, also up by 2% from the previous quarter.  There are 3 main reasons of why the government cannot curb the housing prices.

First of all, the “home ownership” is the dream of all Chinese people. It means Chinese people are willing to struggle for the houses. In rural ares, the best lives for farmers is ” to build a house, married to daughter-in-law”. They will buy a house when they  enter adulthood. In urban areas, the parents prefer to buy a house rather than renting if their children hope to work in this city. These ideas keep the high demand for houses. Therefore, the real estate Gangsters are never worry about the sales of houses.

Next reason is the high taxes. It is said that the real state companies earn CNY 100, they need to pay CNY 61 to the government. It means the costs of houses  are quite high. Hence the real state corporations are not willing to decrease the prices. And worse still, the local  government are not really hope the prices of housing decrease. They can get the financial support from the property boom. Moreover,  the high GDP would bring positive influence to the local government officials.

Lastly, the real state companies may get in trouble if they decrease the house prices. The majority debts of these companies come form the banks. The interests of debts are quite high. In other words, if the prices of housing  reduce, the real state corporations may face the problem of negative cash flow or even cannot replay the loans.

The 3 reasons determined the housing prices of China cannot be curbed in the short term.

Reference: Globalpropertyguide (2013) “China property boom continues relentlessly” at http://www.globalpropertyguide.com/Asia/china/Price-History Accessed on 13/02/14

 

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