China's looming property bubble

Following the "opening up" and flood of foreign direct investment, farmers and rural workers migrated to the cities to work in new and varied industries. The majority lacked the crucial residency permits and became China's exploited low paid migrant labour force exceeding 230 million. Generations, driven by desperation to escape poverty now encountered a modern world of new technology, opportunity, work, hope and wealth.

For those with connections and university degrees, high incomes, "friendly" banks, property development, and the stock market provided opportunities to generate additional wealth on a scale undreamed of before the opening up. It was now possible to flaunt symbols of personal success and wealth. Luxury apartments, cars, clothes, and accessories became the visible evidence of success. For those lower down the scale, those symbols related to local circumstance.

Banks played a major role in the drive to boost earnings, and downplayed risk. Anyone could become eligible for loans. Those lacking assets to secure their loan goals, simply paid corrupt bank officials for the privilege and would recover the fee from their profits. Pooling of family savings boosted the investment pool to participate in the stock market, helped by loans from "friendly" bank officials.

Property market with Chinese characteristics

Like the economy, statistics on population, health, unemployment, GDP and environment are all considered statistics with "unique Chinese characteristics".

Property has emerged as another market with "unique Chinese characteristics" in which crucial factors that include actual demand, affordability and market sectors take second place. The property market is a major contributor to China's GDP, and as such is politically sensitive.

State media

State media plays a key role in boosting the population's confidence in the CCP, the economy, stock and property markets: and the continuous glowing reports on China's increasing importance as a major global economic and industrial power increases that confidence. State media hailed China’s new economic prominence as proof of national superiority:

The country’s economic miracle exists because its leaders, unlike those in other, unnamed nations, can make quick decisions and ensure underlings carry them out. The Great Recession, has laid bare cracks in plodding Western-style capitalism.

A further confidence booster is extensive media coverage of grandiose projects demonstrating China's architectural imagination, innovation, engineering and financial capability to undertake projects developed nations consider impossible.

Buyer profile

Rising incomes have seen China's urban sector vigorously embrace the western consumer's obsession with self-indulgence, credit cards, and debt.

Because of sheer numbers and naïvety of values, market risk and traps, plus total confidence in state media and government, China's buyers are very different, and more vulnerable than their western counterparts. This buyer also lacks protection and guidance from NGOs; legislation governing market and sales practices; misleading advertising; and any effective recourse against illegal and misleading practices.

Striving for this new wealth, buyer confidence is boosted by TV reports of peasants and urban workers in stock market viewing rooms, eagerly talking of their rapidly growing paper fortunes. It was now easier to make money in stocks than working, and the growing value of the investments made it easy to borrow more. Property sells off the plans, long before construction starts, and often before final approvals.

Average house prices in the low income sector can exceed 12 times average income and mortgage payments can consume 60 per cent or more of a buyer's income.