China’s property boom spreads to poorer rural areas as fears grow of a debt time bomb
While property prices stagnate in the biggest cities, remote corners of the country are seeing double-digit growth – prompting many to run up hefty debts in the hope of jumping on the bandwagon
When Li Jing returned to her rural hometown in southeast China for the Lunar New Year in February she was shocked to find the house prices had shot by around 30 per cent compared with her visit a year earlier.
She left with the impression that all her relatives and old school friends were scrambling to borrow money to buy property in Wanan, a small town in Jiangxi province that is officially one of the poorest corners of China.
The boom in house prices in the southern megacity of Shenzhen, where she now works as a financial officer, has left property there beyond her reach.
So Li was persuaded by her sisters and cousins – who have bought flats in Wanan last year – that she should jump on the bandwagon by buying property there.
She is currently debating whether to buy a flat in the city, priced at 5,500 yuan (US$875) per square metre, the usual way of pricing property in China.
The overall 550,000 yuan price tag for the 100-square metre property would be a fraction of what she would pay for a similar flat in Shenzhen, but is still beyond the reach of many locals.
In 2014, more than 42,000 of the county’s population of about 300,000 lived below the poverty line, meaning they earned less than 3,000 yuan per year.
It was only in February that Wanan was officially removed from China’s “extreme poverty” list, according to the provincial authorities.
The story is one that is being repeated all over the country. The South China Morning Post has spoken to a number of people who have moved to the major cities for work but they and their relatives are buying up properties in their hometowns, in some cases spending up to half their monthly income to make mortgage repayments.
Seemingly off the radar of the national property statistics, a quiet property boom is taking place in some of the more remote corners of China even as prices in cities like Beijing, Shanghai and Shenzhen stagnate.
This newspaper has spoken to natives of Zijin county and Yangxi county in Guangdong, and from Miyang county in Henan and Qihe county in Shandong – all of whom have similar stories of booming property prices.
But in Qihe, for instance, the average real estate price grew by over 50 per cent in 2016, rising from less than 4,000 yuan per square metre to more than 6,000 yuan.
Soaring levels of household debt in these rural families is largely invisible in the statistics because the National Bureau of Statistics property price figures ignore vast swathes of the country and only collects data from 70 major cities.
Meanwhile, while China has a rough data about debts from calculating how much families have borrowed from banks, there is no breakdown to distinguish between rural and urban households.
The ratio between debt incurred by families and gross domestic product – known as the household leverage ratio – surged to 49 per cent at the end of last year from 17.9 per cent at the end of 2008, according to data complied by the National Institution for Finance and Development, a state-backed think-tank in Beijing.
It showed that Chinese households in general are accumulating debts at a pace that has never seen before.
The situation for the 280 million Chinese people who have moved away from their homes for work is especially risky given that their incomes are more volatile and they are more vulnerable in the event of an economic downturn.
For those rural residents and migrant workers who purchased property with debt, their families may face financial difficulties if they need cash for any unexpected events as they try to pay off their debts, Ning Lei, a researcher with the Institute for Advanced Research at Shanghai University of Finance and Economics, said.
“China’s household debt to household disposable income ratio will continue to rise,” said Ning, who has been studying household debt.
“It increases the danger of an ugly correction if the Chinese job market softens or income stagnates.”
China’s excessive monetary easing, associated with a steady property price inflation, in the past decade has generated a perception that “if you don’t buy a flat today, you will never be able to afford it”, and that perception is spreading from big modern cities into the poorer corners of the country.
China’s young rural residents no longer follow the old tradition of building houses on their own land in the village or town, where they were born, but are now borrowing money to raise the down payment for a new property in the local county town or city in the hope of cashing in on the rural property boom.
“Those still planning to stay in their village and build a house are thought of as stupid losers,” Li said.
“Without a flat in a county town or city, it’s even difficult for a bachelor to find a woman to date. Everyone I know who was born in a village after the 1970s is planning to buy a flat in town with a mortgage, if they haven’t already done so.”
In the town centre of Wanan, a new urban lifestyle is developing as new cinemas and shopping centres spring up, making it more attractive to young people compared with sleepy village life.
It is part of China’s grand urbanisation that is seeing hundreds of millions of people moving from the countryside into towns.
A distinctive feature of this trend in inland places such as Jiangxi is that many people who bought properties near to home don’t live in them because the local economy cannot generate enough decent jobs so they have to go to the big cities to work.
Because letting out a property will make it much harder to sell on, the flats are generally left to lie vacant.
At the end of 2016, Li’s brother-in-law, Xu Yunong, who works in Shenzhen as a decorator, borrowed 50,000 yuan from relatives. Combined with their savings this allowed him and his wife to raise the 175,000 yuan as down payment – 30 per cent of the total value – on a 115-square metre second-hand flat in Wanan.
Since buying it, the flat has risen in value by around a third.
After a casual conversation with Xu, Li Jing’s cousin Li Nianghong, a courier in the eastern tech hub of Hangzhou, decided in February last year to buy a new 93-square metre flat in Wanan, which has risen in value by around a quarter since then.
Around 1,000km away from Wanan, Xiao Yinghong, a native of Zijin county in Guangdong who works as a nanny in Shenzhen, pulled together 160,000 yuan in 2017 for the minimum down payment on a big flat in Zijin.
She has been cheering the decision because last year house prices in Zijin – which is still on the official poverty list – rose by over 20 per cent, while prices in Shenzhen were virtually unchanged in the wake of government moves to curb borrowing.
All of the three migrant workers were easily able to secure bank loans to finance the purchase and now face monthly mortgage repayments of between 2,400 and 2,800 yuan over a 15-year period.
Migrant workers typically earn around 2,800 yuan a month if working as a cleaner or a guard, but can make up to 5,000 yuan a month in some factory jobs or working as a nanny. They can also expect to pay around 800-1,000 yuan a month to rent a single room in the major cities.
All of them believe the boom will continue and expect prices to rise even more quickly this year compared with 2017.
“Honestly, I was struggling to sell any housing stock from 2013 till late 2016. But houses have suddenly been selling quickly since then. It’s so difficult to buy an apartment now,” said a local property developer in Wanan who has sold 500 flats in the county since late 2016. He also said that land prices had doubled in this period.
Simon Zhao, founding director of International Centre of China Studies said the debt-fuelled housing boom in rural China was following the trend of major cities such as Shenzhen, where prices in some areas doubled or even tripled between 2014 and 2016.
“Compared to the middle-classes in urban cities, their ability to guard against debt risk of rural population is actually less because their jobs and incomes are unstable.
“A nanny or waiter, would be spending over half their monthly income to repay a mortgage based on 2017 house prices.”
On the other hand, there is a paradox for them. If they were to live in their new home, they will not earn enough to repay their mortgages. So they go to work in the cities, leaving their new properties vacant.
But many are happy to so, confident in their belief that these empty properties will continue to accumulate value spectacularly.
Li Nianghong said his three-year-old son will come to live with him and his wife in Hangzhou while he continues to work as a courier. In time the boy will be sent home to his grandparents to study.
“By that time, I believe home prices in Wanan will have already doubled or tripled,” he said.
If that belief proves misplaced, the consequences for him – and millions of other people in a similar position, could prove disastrous.