Chinese state bank chief warns against buying property now ‘because there’s no money to be made’

The chairman of a leading Chinese state bank on Sunday warned Chinese investors not to buy property now because “there’s no money to be made” due to high prices and alarming vacancy rates.

Tian Guoli, the chairman of China Construction Bank, which provides mortgage loans to millions of Chinese households, said that the room for further property price rises was limited and it was unwise to buy at current rates, according to the portal Sina.com.

“There’s no money to be made if you buy a flat nowadays. If you insist on buying a home, aren’t you trapped at the high price level?” Tian told a forum organised by Peking University’s Guanghua school of management.

The warning by Tian, who is an alternate member of the Communist Party Central Committee, came at a time when the country is in heated debate about the role of the property market – whether it will lead to an bust or whether it can help shore up the economy.

At the recently concluded Central Economic Work Conference, the top leadership promised to build a long-term mechanism for the property market, on the basis that “property is for living, not for speculation”, adding that regulations would vary from city to city.

Over the past two decades property has proved to be one of the best investments in China.

Despite constant government intervention – from purchase restrictions and sales limits to mortgage loan constraints – the average price has soared, making property in Beijing and Shanghai as expensive as London or Tokyo.

However, there has also been increasing concern that a downturn in the housing market would hit households, banks and developers hard – and this in turn would be a serious threat to China’s state banks and local governments, whose revenues are tied to the property market.

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The value of outstanding real estate loans – including mortgage and development lending – reached 38 trillion yuan (US$5.5 trillion) by the end of September 2018, or 28 per cent of total lending, according to government data.

The combined value of properties in China, Tian warned, has reached US$40 trillion, larger than the US$30 trillion in the United States.

While many property speculators in the West prefer to rent out their properties to ensure a rental income, in China it is more common to keep newbuilds empty because lived-in properties lose some of their value.

While there are no official figures on the number of vacant homes it is believed to be much higher than the 10 per cent recorded in the US at the time of the subprime crisis.

Tian said China still an adequate supply of housing stock, with shortages limited to a few big cities.

However, in these cases he said it was important to ensure there were enough rental properties available.

“It is very necessary for large state-owned financial institutions to penetrate into property rental markets,” he said.

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The latest China household finance survey conducted by the Southwest University of Finance and Economics, which was published last week, found that the number of vacant urban homes in China has risen to 65 million units in 2017 from 42 million units in 2011, with the vacancy ratio rising to 21.4 per cent from 18.4 per cent in the period.

China’s small cities had more serious vacancy problems than bigger ones, the research centre found, echoing Tian’s speech.

Data from the National Bureau of Statistics showed that the average living area of Chinese urban residents already reached 36.6 square meters in 2016.