So many terrifying rock-vs-hard-place counterfactuals in here.
- Even in a so-called second-tier city like Jinan, a 100-sq.-meter apartment would cost him about 2 million yuan ($297,000). Yan, who makes roughly 6,000 yuan a month working for a local environmental nonprofit organization, is only able to afford half of that, despite years of saving and generous support from his parents.
Yan makes $900 a month and a 1100sqft apartment is $300k. If Yan were an American, following the rules and putting down 20% and 25% of his monthly on rent or mortgage, Yan could basically afford a 30-year mortgage on a Volvo station wagon. The down payment alone would take him four and a half years to save up, assuming he could drop a quarter of his paycheck on it.
- According to his estimates, about 80% of Chinese people's wealth is in the form of real estate, totaling over $65 trillion in value -- almost twice the size of all G-7 economies combined. A significant slowdown could, therefore, have a substantial impact on citizens' financial health.
Some large and terrifying portion of China's wealth is dependent on Yan figuring out a way to afford an apartment five times as expensive as is reasonable. And if Yan can't do it, they're counting on you, by the way - especially if you live on the West Coast of North America.
The hits just keep coming:
- Prof. Gan warns of potential financial risk from the rising number of vacant houses. Of the 22.9 trillion yuan ($3.4 trillion) of outstanding mortgage debt held by Chinese people as of the end of 2017, 47.1% of that is tied up in residences that now stand empty.
That's half of all mortgage debt that is never, ever going to make the money it's supposed to.
I had to look up the Chinese city tier system. What do you mean?The Chinese city tier system (Chinese: 中国城市等级制) is a hierarchical classification of Chinese cities. There are no such official lists in China, as the Chinese government does not publish or recognize an official definition or a list of cities included in the tier system. However, it is frequently referred to by various media publications for purposes including commerce, transportation, tourism, education, and more.[1][2] Given the rapid development of Chinese cities and the ever-changing dynamic among cities, the tier system has gained wide popularity in recent years as a point of reference. Cities in different tiers reflect differences in consumer behavior, income level, population size, consumer sophistication, infrastructure, talent pool, and business opportunity.[3] The tier system typically includes cities in mainland China only.
And if Yan can't do it, they're counting on you, by the way - especially if you live on the West Coast of North America.
For the past ten years, real estate prices up and down the West Coast - from San Diego to Vancouver - have been driven by Chinese REITs buying up everything for investment. Below $500k you often find yourself competing with cash offers from foreigners that have no intent of ever living in the place. Large swaths of downtown Long Beach, downtown LA and downtown Vancouver are empty: These condos and houses were not bought because the Chinese want houses to be empty, they were bought so that they could store their wealth in places the Chinese government couldn't reappropriate it. They were investing. Which means someone needs to buy it for more than they bought it for or else they're losing money. So. Can... you afford to go toe-to-toe with a Chinese REIT? Because every "housing crisis" story you see is about workers who can't pay what investors want them to.