May 25, 2012
Recently, the CFHS (China Household Finance Survey), an organization jointly founded by the Financial Research Institute of the People’s Bank of China and SWFU (Southwestern Financial University), published a report on China’s households. It stated that the self-owned housing rates for China reached 89.68%. As this subject strikes a sensitive nerve with the Chinese public, the CHFS drew a comparison to home-ownership rates in US (65%) and Japan (60%). They concluded that the percentage for China is 25% higher than US, and 30% higher than Japan.
Two issues need to be examined at this point. First, definitional consistency such as what defines a household. Further, how representative is the sample for this survey? As reported by the CFHS, less than 4,000 households were interviewed, breaking down to just over 100 households per province. Based on a population of over 1.3 Bn, and average household size, there are nearly 400 Mn households in China. (Tip: 4,000/ 400,000,000,000 = .000001%)
For now, we can leave the definitional issues and comparisons aside. As a vastly agricultural country, the home-ownership rates in China’s rural areas which are undoubtedly nearing 100% must have a significant impact on the total figure. In China this number does not offer much implication. As the land in the countryside is collective owned by village, houses in countryside are "uncompleted-right houses” and home owners possess right to use the land and own the house. The homeownership in countryside is naturally high as local town government granted paper to residents. Furthermore, the number presented by the CHFS is still very misleading as their investigation did not account for potential first-time home-buyers such as those in overcrowded dwelling situations, adult-aged children still living with parents, and a mass of floating population which migrates based on employment opportunities. According to the most recent census, more than 220 Mn Chinese do not work where their ‘Hukou’ is registered; they account for 16.5% of the total population. What this tells us is that even while home-ownership rates may be reported as high as 89.63%, many ‘households’ which own a home are actually in the market for a new home purchase.
While many families might own homes, they are still plagued by high levels of debt. According to national bank statistics, RMB 7.3 trillion in residential mortgages was owed in China by the end of March 2012. This represents 66% of real-estate loans (including mortgages and development debt), and accounts for more than 12% of total bank loans. In 1998, this figure was less than RMB 71 Bn. With nearly 400 Mn households in China, this averages RMB 18,200 of mortgage debt per family. Actual levels are higher than this as a substantial number of homes are fully paid off (i.e., completed payments or inherited properties).
Figure 1: Breakdown of Private Lending
The problem at hand is more serious than it appears through these figures. The stated home ownership rate is not an adequate reflection of the actual situation as it fails to consider certain groups as households, or potential homeowners. Furthermore, although titles have been formally transferred to current ‘homeowners’ many of these are coupled with a large sum of debt. As housing prices continue rising, homeowners that should be upgrading to improved living situations is not feasible. Ultimately, the purpose of an investigation is to either break down an issue to reveal its underlying problems, or suggest potential solutions for certain known problems. As the results of this study have skirted both objectives, this issue is more complicated than it seems and requires further examination.
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GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.