Plenty of Chinese people are struggling to meet monthly mortgage payments as China’s home market continue to bubble, an article by Bloomberg reported.
Aside from posing a risk to the banking sector, the property bubble in China may also hinder any economic growth as more income is spent on big mortgage payments instead of discretionary spending.
It has also gotten harder for Chinese people to secure a mortgage as lenders now require borrowers to make a 30 percent to 35 percent down payment.
The dire situation of China’s home market is most evident in major cities such as Shanghai and Beijing, where retail sales growth rates dropped significantly and property prices increased by over 20 percent.
According to a report published on Feb. 9 by Hong Kong-based UBS Group AG, families in cities like Beijing, Guangzhou, Shanghai and Shenzhen need at least 17 times their annual income to be able to afford a home in their cities, Bloomberg reported.
In Beijing alone, home prices increased by 32.6 percent in 2016--a dramatic increase compared to the 8.4 percent growth average personal disposable income in the city experienced. This makes it particularly harder for young and middle-aged Chinese families to purchase residential real estate without burying themselves in debt.
Although high property prices look impressive on paper, discretionary spending, a vital driver of the Chinese economy, suffers, according to Jacqueline Rong, an analyst at BNP Paribas SA.
“Mortgages and debts would suck up a large share of many home buyers’ income and savings, leaving less room for other expenses,” Rong told Bloomberg.
Soaring property prices in China’s major cities also put a huge dent on the dreams of its people, especially in a society where homeownership is a source of pride and a measure of success, particularly among young families. Despite the high cost of homes, the demand remains strong.