Charles Hugh Smith writes for the Daily Finance and claims that China’s Housing Bubble Will End Badly.
That’s not going to happen for several reasons. The first reason is that China’s economy does not depend on the housing market to survive. Most people in China still don’t own their homes even in the cities.
In the US, housing loans to GDP were 79% but in China, that number is about 15%, which means real estate in China doesn’t prop up the economy.
Let’s look at one fictional individual who loses his job in China and can’t make his mortgage payment.
If he always lived in the city and has family (even distant relations), he will move in with them and rent his home to make the payments. The family may even pitch in so he doesn’t lose the home.
If that fictional Chinese man came to the city to work from a village, he returns home. The peasants in rural China don’t have to worry about losing those homes. In fact, it’s as if China had two economies: rural and urban.
If the government needs to develop the land the peasant’s home sits on, a new home is provided. More than seven hundred million Chinese live in villages owned by collectives and the central government. Those peasants don’t have a mortgage payment, pay rent or property tax.
Even in urban China, people only pay property tax once when they buy the home they live in. Property tax for your home isn’t an annual burden as in the US.
Another factor is that the average savings rate in China is 40% and the wealthiest Chinese own about 40% of urban real estate.
Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.
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