Will the China property bubble pop?
Beijing, China (CNN) -- When Crystal Zhang decided to buy a house last August, it seemed like a no-brainer.
For years, she had been spending a big chunk of her salary renting a studio apartment in Beijing, where she works as a mid-level executive in a multinational company. But her landlord kept hiking the rent, so she found a second-hand apartment and plunked 640,000 RMB (nearly US$100,000) as 52 percent down payment for a new home. She now lives in a cozy, one-bedroom flat and sets aside 25 percent of her monthly salary to pay for mortgage. "I hope to pay all up in five years," says Zhang. "By then I can start making some other investments."
Zhang, 30 and single, is one of the fortunate ones. The upwardly mobile professional has ample disposable income--and a good sense of timing. In just five months since she bought her 85-square-meter apartment, it has already appreciated by 38 percent. "I'm glad I bought this one when I could still afford it, even though its price was already high," she said. "Now the price is ridiculously high."
85 square meters is 915 square feet.
$100,000 x 1.38 = $138,000.
That's $151 per square foot.
Update: G.H. spotted a math error here. It's roughly twice as expensive. See below.
When I bought my home (just outside of Seattle, WA) in 1997 I paid less than $100 per square foot. It's a fairly nice house on 1/3rd of an acre. It has two fireplaces and a three car garage. It is currently assessed at about $170 per square foot, down from its $200 peak.
I had no idea I was competing with upwardly mobile Chinese professionals on such a level housing playing field. I'm still slightly in the lead, but I'm really losing some ground here. This is truly embarrassing. I'm going to lose to a second-hand apartment. I can feel it in my bones. I need to step up my game.
My only hope is that China continues to build more 85-square-meter apartments to the point that prices come down. For the life of me I can't figure out what to do to make my own house price go up any more. That's for sure. Mowing the lawn no longer seems to be offering any bang for the buck. It's as if I mow it simply to partially maintain the existing price. What an exercise in futility that is becoming!
If only I lived in China. I'd still be competing with a billion people, sure, but there also seems to be a billion "no-brainer" investments to match. How could I lose?
Nobody ever loses betting on China!
Update: G.H. has pointed out in the comments that my math was way off. I thought $100,000 was the purchase price. That was just the down payment though. That means the apartment cost roughly twice as much and I have already lost the race. Big time! Wow!
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