China's Economic Rebound Succeeds but Growing Real Estate Speculation Risks

[Asia Economy Reporter Park Sun-mi] Although the Chinese economy succeeded in a V-shaped rebound with a 3.2% growth rate in the second quarter, concerns are growing as the real estate speculation frenzy intensifies.

According to China's state-run Xinhua News Agency on the 17th, real estate investment in China in the first half of this year reached 6.28 trillion yuan, an increase of 1.9% compared to the same period last year. Compared to a 7.7% decrease from January to March, this means that the growth in the second quarter from April to June was explosive. In particular, residential real estate investment recorded 4.64 trillion yuan, up 2.6% from the same period last year. The prices of new homes in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen also rose 0.6% in June compared to the previous month.

Despite the spread of COVID-19 across China, signs of overheating in real estate investment are being detected. The Nihon Keizai Shimbun reported that a new apartment complex in Jiuxianqiao, Chaoyang District, Beijing, was put on sale at 98,000 yuan per square meter, and 50 out of 400 units were sold in June alone. In the Wangjing area of Chaoyang District, Beijing, another apartment complex was newly launched, and despite the smallest units being luxury apartments starting at approximately 1.1 billion Korean won, all 400 units were sold out on the first day.

The Nihon Keizai Shimbun explained that as real estate transactions surged in China, sales of not only construction materials but also furniture and home appliances needed for moving into new homes have been active since May. The real estate development industry expects strong performance this year. Hengda Group, a major Chinese real estate developer, raised its sales target for this year by 23% compared to the figure set in January.

The Wall Street Journal (WSJ) also described the Chinese real estate market as a "bubble" and expressed concern over the recently heightened investment enthusiasm. The newspaper reported that the current frenzy in real estate investment in China recalls the Chinese government's efforts to control runaway housing prices. Chinese President Xi Jinping declared in 2017 that houses are "built for living, not for speculation," showing his determination to curb housing prices, but many Chinese people still purchase real estate for investment purposes.

WSJ analyzed that the background of the real estate speculation frenzy in China lies in the strong perception among Chinese people that the government, aiming to revive the economy, will not tolerate a decline in the real estate market. If housing prices fall significantly, Chinese people's assets would shrink, triggering social unrest, which the Chinese government does not want to see. Guangfa Bank of China stated in a report that while only 35% of assets in the U.S. are tied up in real estate, Chinese people have invested 78% of their assets in real estate, effectively going "all-in" on home purchases.

This content was produced with the assistance of AI translation services.