BEIJING // Hao Menhui said she feels she is late in entering China's booming housing market. All of her friends have at least one house to their names, if not two. But one month ago she joined China's growing club of homeowners and bought a spacious 200 sq m apartment in Beijing. "The price was right," she said proudly, "and we have been looking for a long time." Finding the home was harder than buying it. China's real estate development cannot keep up with the booming consumer demand, particularly in such large urban centres as Beijing. Moreover, the Olympics was a catalyst for a property buying spree.
"People thought prices would go up so they bought, bought, bought," said Li Qin, another proud homeowner. Ms Li, 35, knows the value of a good investment. In 2001 she bought a small apartment in Beijing for nearly 500,000 yuan (Dh268,000). Four weeks ago it was evaluated at nearly three times what she paid. Buying a home in China has become a ritual of the times. "If you could afford an apartment, you bought it," Ms Li said.
And plenty of Chinese can afford it these days, many even paying with cash. For those who do not have the liquidity, bank loans had, until recently, been easy to get. China's housing sector accounts for 17 per cent of the country's fixed-assets investments, making it an important sector in the overall economy. Knowing this, it is hard to imagine that it was not so long ago when owning a house was unfathomable and even politically incorrect. "My grandfather gave all his land to the state when the Communist Party came to power in 1949," Ms Hao said.
"It was a smart move at that time because he could not be tagged as a landlord during the political campaigns that followed." After 1949 her father, a Communist Party member, was assigned a state-owned apartment that became the family home. "The rent and electricity were so cheap. We paid only six renminbi a month. It never entered our minds to own the place," Ms Hao said. By the early 1990s, however, home ownership was introduced as a way to lessen the financial burden of the government to build and maintain the apartments. So those once renting state-owned apartments bought them instead. In 1996 Ms Hao's father paid cash for their 80 sq m apartment. It was a mere 40,000 yuan. Its value has skyrocketed. With more and more Chinese buying houses or wanting to buy houses, could what happened in the United States, happen here? Unlikely, analysts say. Many homes in China are bought with cash. Even people who have mortgages are often able to pay them off quickly. Ms Li took a mortgage out for 80 per cent of the price of her apartment in 2001. She repaid it back in full three years later. And although getting mortgages has been fairly easy in the past, the government has raised interest rates, tightened up on lending and banned some construction projects since last year to bring more control into a property bubble that has been largely fuelled by speculation. A property law was also passed last year giving owners new legal protection. "We already had a small taste of what the United States is experiencing now with the property bubble," said Yi Xianrong of the Finance Research Institute in China's Academy of Social Sciences. "But our government last year stepped in and took control. It did a good job." And everyone knows what has happened in the United States. The US subprime crisis and Lehman's bankruptcy have been front-page stories in the Chinese media throughout the past couple of weeks. Reacting quickly to the news on Lehman, the People's Bank of China cut interest rates on one-year loans by 0.27 per cent to 7.2 per cent. The decision last week was the first time since 2002 that the country's central bank has cut rates, indicating concern about losing the confidence that has fuelled the country's growth so far. The government has also begun to publicly count its losses. Major Chinese banks this week openly reported the extent of the damage in the domestic media. Industrial and Commercial Bank of China, the country's largest state-owned commercial bank, has US$151 million (Dh555m) in bonds issued by or linked to Lehman. China Merchants Bank and Bank of China have over US$140 million worth of Lehman bonds while three other commercial banks have invested in Lehman-related assets. But China will be relatively unscathed by what has happened in the United States, analysts say. "In the world of finance, China is a closed country. The banking system is controlled by the government and the local currency is not convertible," said François Gipouloux, a French economist who has been researching China's economy for two decades. "Moreover, this is not a country where people live on credit. This is a culture of cash." While most Chinese still dream to one day own their own home, the financial system reminds them that it will not be for everyone. "Not everyone has the means to buy a house. Those who can't will have to do without," Mr Yi said. Ms Hao feels lucky. Her home was on the market for just a few days when she saw it. It took only hours to decide to buy it. While she put most of her savings into it and knows it will be harder to buy a second one, she said she is satisfied. Having one piece of property in this still booming market makes her feel secure. She is now looking for a good stock for investing the rest of her savings. It is her kind of confidence that makes the US crisis seem a distant problem. firstname.lastname@example.org