China’s economy might crash if they push property prices up without property tax

General
1

If China tries to bump up property prices again, I think their economy is going to keep crashing, especially since they don’t have property tax. Right now, the price-to-income ratio is between 20-30, even in poorer cities.

It looks like China is backing off from lowering property prices, trying to stabilize and raise them instead. But I think this is a bad move in the long term.

Sure, a dropping property market makes people feel poorer, and they stop spending, which hurts the economy. So I get that China wants to make people feel richer again. But the problem is, even after the big drop in property prices, it still takes people 20-30 years of salary to buy a home. Compare that to the U.S., where the average is 4, or New York at 10, and most European countries where it’s around 5-10.

Trying to boost the property market isn’t a healthy long-term solution. Instead, getting people to invest in stocks for the long term would be better if the goal is to make people feel wealthier and spend more.

Also, since China doesn’t have property tax like in the U.S., there’s no 1-2% yearly tax on property values. So even if property prices go up, it doesn’t really help the government, and it doesn’t do much for the citizens either, since most of them only own one home and live in it.

I get that the government is in a tough spot. There are too many people who depend on high property prices, so they can’t just lower the price-to-income ratio to a healthy 5-10 in the short term. But this is going to hurt everyone in the long run, including homeowners.

Let me know your thoughts or if I’m missing something.

2

The big issue is that the government can’t really do much about the structural problems.

3

Investing in Chinese stocks isn’t the solution either. In the U.S. and Europe, we have proper accounting rules to measure performance and future expectations. That’s not the case there.

4

“To compare, the U.S. has an average ratio of 4.”

Are you sure about that?

5

In China, it’s not just two adults buying a home. You can have up to 14 people helping out — 6 from each side of the family plus the couple themselves.

So that 20-30 price-to-income ratio is still doable.

Also, when parents and grandparents pass away, their homes get passed down to the next generation. With no siblings to share the inheritance, one couple can end up with multiple homes. And they can take out mortgages on those homes for extra spending or more investments.

In Chinese culture, parents don’t just kick their kids out at 18. They support them for life.

6

That’s an interesting point about inheritance. But keep in mind, China doesn’t allow people to actually own real estate — it’s just a 99-year lease. What happens when that lease expires in the child or grandchild’s lifetime?

7

Good point! I hadn’t considered the impact of the one-child policy.

But now China is moving to a two or even three-child policy. Do you think that’ll change the ratio?

8

Maybe, but I doubt it. The birth rate is still super low.

9

Yeah, it probably won’t change unless the system makes it easier for people to afford real estate. Right now, it’s too expensive to have more kids and afford a home.

10

Sure, China doesn’t have a property tax right now… but for how long? They don’t have voters to worry about, so the policymakers can do whatever they want. If you’ve been paying attention, they’ve been hinting at property tax for years. And remember, people in China don’t own the land. They’re basically renting it for 50 or 70 years.

11

People have been predicting this for 20 years. I’ll believe it when I see it.

12

China’s economy has a few major challenges right now.

  1. The population is shrinking.

  2. They might have overcounted their population by as much as 100 million.

  3. There’s an imbalance in the age and gender of the population, thanks to the one-child policy. There are too many men competing for fewer women, and the families of those women are asking for more wealth in marriage, like having more houses. This drove the housing market up, but now it’s crashing.

  4. Younger people are losing motivation to work. They’re “lying flat,” staying at home with their parents, and not starting their own families, which means they’re not contributing to the economy.

  5. China was also boosting its economy through infrastructure projects. They built massive cities no one lives in and highways to nowhere. Now those projects are backfiring.

  6. Without property taxes, the local governments made money by selling land to developers. But now those developers are going bankrupt, and the governments are losing that source of revenue.

  7. China is using “debt trap diplomacy,” but now that their economy is slowing down, they could really use the money they lent out.

  8. Western companies are pulling out and diversifying their supply chains. Tesla is one example. China welcomed them at first, but now local companies like BYD are competing, and Tesla’s not as dominant there.

  9. If western buyers pull out, China will have to rely more on eastern buyers, but they don’t have the same purchasing power.

I might have oversimplified some things, but this gives you a general idea of what’s going on.

13

Have you lived in China before?

14

All my friends in China own houses by the time they’re 25-28. In Europe, my friends don’t even think about owning a home before they’re 40.

15

Why is that the case in Europe?

16

It’s not everywhere in Europe, but in some places, it’s because people make less than 1k a month, while a home can cost 250k or more.

17

There’s a lot behind this, but it’s not necessarily a good thing long term for China.

18

The property sector is definitely in trouble. As for the rest of the economy? We’ll see.

19

I’ve been hearing about China’s economy crashing since the early 2000s. Any day now.

20

Housing is a lot more common and affordable in China. About 93% of Chinese people own their homes (or live with family who do), compared to 65% in the U.S.

Many people live with extended family, but lots of young people move to big cities for better jobs and live on their own.

Most homes in China are apartments, though, not single-family homes like in the U.S., so they’re more affordable.