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| Home Prices in China May Hurt Families | Home Prices in China May Hurt Families |
| (6 months later) | |
| HONG KONG — China’s banks may not be directly exposed to losses from the country’s soaring housing prices, but any slump in those prices could set off widespread public anger, data from a broad new survey of household finances indicates. | |
| The survey — the largest academic study of personal finances in China, with 99,000 individuals in 28,000 households interviewed late last summer — found that Chinese families have put their savings overwhelmingly into their houses. A combination of large down payments and soaring prices means that even if housing prices were cut in half, only 5 percent of homes would be worth less than the remaining balance on their mortgages, the survey found. | The survey — the largest academic study of personal finances in China, with 99,000 individuals in 28,000 households interviewed late last summer — found that Chinese families have put their savings overwhelmingly into their houses. A combination of large down payments and soaring prices means that even if housing prices were cut in half, only 5 percent of homes would be worth less than the remaining balance on their mortgages, the survey found. |
| But the survey, conducted by Southwestern University of Finance and Economics in Chengdu, China, also found that Chinese households have an inordinate share of their total assets in their homes, with very little diversification into stocks, bonds and other assets. Housing prices have been soaring for more than a decade in China, up as much as twentyfold in smaller towns that have been suddenly connected to big cities by high-speed rail lines, and up significantly in large cities as well. | But the survey, conducted by Southwestern University of Finance and Economics in Chengdu, China, also found that Chinese households have an inordinate share of their total assets in their homes, with very little diversification into stocks, bonds and other assets. Housing prices have been soaring for more than a decade in China, up as much as twentyfold in smaller towns that have been suddenly connected to big cities by high-speed rail lines, and up significantly in large cities as well. |
| If housing prices fall, “they’ll not get just a little angry, they’ll get tremendously angry,” said Li Gan, an economics professor at Texas A&M University who oversaw the study. | If housing prices fall, “they’ll not get just a little angry, they’ll get tremendously angry,” said Li Gan, an economics professor at Texas A&M University who oversaw the study. |
| Share prices fell 4.5 percent in the Shanghai and Shenzhen stock markets last Monday and Tuesday before stabilizing at a lower level after the government announced that housing prices were rising more slowly, after years of double-digit percentage increases. The government has been trying to slow the rise in real estate prices through measures that include forcing banks to require down payments of 30 percent or more for the first home purchased, and even more money — or no mortgages at all — for subsequent homes. | Share prices fell 4.5 percent in the Shanghai and Shenzhen stock markets last Monday and Tuesday before stabilizing at a lower level after the government announced that housing prices were rising more slowly, after years of double-digit percentage increases. The government has been trying to slow the rise in real estate prices through measures that include forcing banks to require down payments of 30 percent or more for the first home purchased, and even more money — or no mortgages at all — for subsequent homes. |
| When property developers in Hangzhou tried a week ago to cut prices to reduce their large inventories of unsold apartments, earlier buyers who had paid more protested, demanding that the price cuts be rescinded, according to the state media. Some signs have also emerged that construction, which accounts for nearly one-fifth of China’s economic output, is starting to slow. | When property developers in Hangzhou tried a week ago to cut prices to reduce their large inventories of unsold apartments, earlier buyers who had paid more protested, demanding that the price cuts be rescinded, according to the state media. Some signs have also emerged that construction, which accounts for nearly one-fifth of China’s economic output, is starting to slow. |
| The official China Daily newspaper published an unusually blunt editorial on Wednesday, warning that “Chinese policy makers must take measures to prevent house prices from becoming a source of financial instability, and they should prepare as early as possible to deal with the social impact that falling home prices may exert.” | The official China Daily newspaper published an unusually blunt editorial on Wednesday, warning that “Chinese policy makers must take measures to prevent house prices from becoming a source of financial instability, and they should prepare as early as possible to deal with the social impact that falling home prices may exert.” |
| In another sign of weakness in the Chinese economy, the government’s monthly survey of purchasing managers in manufacturing, released on Saturday, showed that sentiment in February was the weakest in eight months. The index dropped to 50.2, from 50.5 in January. A reading of 50 indicates expansion, while a lower reading indicates contraction in manufacturing. | In another sign of weakness in the Chinese economy, the government’s monthly survey of purchasing managers in manufacturing, released on Saturday, showed that sentiment in February was the weakest in eight months. The index dropped to 50.2, from 50.5 in January. A reading of 50 indicates expansion, while a lower reading indicates contraction in manufacturing. |
| Analysts have cautioned that although banks may have limited their direct exposure to household mortgages, the banking system has huge loans outstanding to property developers, construction companies and construction suppliers, like steel mills. Steel prices have been drifting down since last summer, an indication that demand may be faltering. | Analysts have cautioned that although banks may have limited their direct exposure to household mortgages, the banking system has huge loans outstanding to property developers, construction companies and construction suppliers, like steel mills. Steel prices have been drifting down since last summer, an indication that demand may be faltering. |
| Households across the country have 66 percent of their assets in their homes, and in Beijing the figure is now 84 percent, the study from Southwestern University found. The comparable figure for the United States is about 41 percent. | Households across the country have 66 percent of their assets in their homes, and in Beijing the figure is now 84 percent, the study from Southwestern University found. The comparable figure for the United States is about 41 percent. |
| Wealthy families in China often diversify into other assets, like shares of privately held companies, preventing the proportion of assets in housing from appearing to be even higher. But the middle class has put almost all of its money into homes, Mr. Gan said. | Wealthy families in China often diversify into other assets, like shares of privately held companies, preventing the proportion of assets in housing from appearing to be even higher. But the middle class has put almost all of its money into homes, Mr. Gan said. |
| The study found that 87 percent of city dwellers already own their homes, which appears to be limiting the number of first-time home buyers left to hold up prices. The survey also found signs that urbanization may be slowing, as the young and the educated have already moved from rural areas to cities in extremely large numbers. | The study found that 87 percent of city dwellers already own their homes, which appears to be limiting the number of first-time home buyers left to hold up prices. The survey also found signs that urbanization may be slowing, as the young and the educated have already moved from rural areas to cities in extremely large numbers. |
| Financing for the survey came from Southwestern University and the state-controlled Agricultural Bank of China. But Mr. Gan said that the survey had been done with complete independence, following the latest statistical practices. | Financing for the survey came from Southwestern University and the state-controlled Agricultural Bank of China. But Mr. Gan said that the survey had been done with complete independence, following the latest statistical practices. |