Rising Tariffs Could hurt China’s Real Estate
Increased volatility is a clear and present danger to investor sentiment after the trade war tension ratcheted up a few notches this past week due to increased tariffs on both U.S. and Chinese goods. Global markets are still betting that a final deal ultimately will be reached, but there is growing evidence that both sides are digging in for the long haul, if necessary, to gain favourable terms. Chinese investors of domestic real estate have been on a buying spree, with 69% of buyers in 2018 purchasing their second or third home and more than 50% of those purchases bought for investment purposes. Trade tensions and capital outflows already are having an impact. In Beijing, the vacancy rate for investment properties is approaching 20%. Home prices versus incomes are way out of whack. In Shenzhen, the price per square foot (PSF) is around $760 compared to $636 in Silicon Valley. The big difference is the average salary in Silicon Valley is about $84,000 whereas the average salary in Shenzhen is just over $15,000. It is difficult to get one’s arms around China’s real estate market. Not only is 25% of the country’s gross domestic product (GDP) tied to construction, 80% of the nation’s wealth is invested in domestic property holdings at a time when it is estimated there are 65 million vacancies.
Tags : INTERNATIONAL