When the going gets tough, buy an expensive house, says Shanghai homebuyer betting on a post-coronavirus price rebound

Mark Zhou is among hundreds of investors thinking of buying a luxury home in Shanghai’s Shang Hai Wan complex. “Homes remain the only investment in which we Chinese people have faith, when a bleak economic outlook poses a threat to our jobs and incomes,” the 40-year-old says.

Flats in the complex, ranging in size from 62 square metres to about 130 square metres, cost at least 110,000 yuan (US$15,545) per square metre, more than double the average price of residential units in mainland China’s commercial capital. “We will not hesitate to bet on a stronger residential property market by increasing our leverage,” Zhou adds.

He is among homebuyers who are returning to mainland China’s property market and betting on a turnaround in home prices once the coronavirus pandemic ends. They have already pushed up prices in 100 cities monitored by real-estate consultancy E-house China Research and Development Institute. The prices of new homes in these cities rose 15 per cent year on year in the first quarter.

The rebound is expected to boost China’s economic growth, but comes at a cost. It has pushed up the household leverage ratio, a metric that measures a family’s debt, such as mortgage, consumer loans and small business loans, to its income.

The ratio touched 57.7 per cent in the first quarter, the highest on record, according to data from Wind Information. It was also the largest quarterly jump since the first quarter of 2010.

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“We need to control the leverage ratio, because if housing prices slump people will dump their houses” just like what happened in the United States during the 2008 financial crisis, said Gu Yunchang, deputy director of the Property Policy Expert Committee of China’s Ministry of Housing and Urban-Rural Development. “But if the leverage ratio is not high, people can’t afford to buy property. We need to think systematically to solve this problem,” he said.