Beijing's real estate market is becoming a major concern for the Chinese government.
Luxury villas, which now permeate the Beijing skyline, are a major aspect of the problem. These villas are gaudy compounds that advertise western-style housing, individual lawns, clubhouses, and excessive luxury services. Even the casual tourist will find these gated communities hard to miss, as they saturate the ring roads of suburban Beijing and dot the inner city.
The housing market in Beijing is dynamic. Foreign residents in the city have been increasing with the greater international business presence and foreign investment in China. For these foreigners, 1993 represented a watershed year in the housing
market.
Before that year the availability of apartments and offices were limited and expensive. Foreigners lived in diplomatic compounds and businessmen both lived and worked out of hotel rooms.
Relief eventually came with reforms that allowed foreigners to buy or lease property. The government began to license specific real estate for sale on the foreign market.
There is now an ever-increasing demand for foreign real estate. Some are now saying a supply side shock has begun, which is manifesting itself in an overabundance of office space, apartments and luxury villas.
The truth is more complex. Prices over the past decade have fluctuated, and each area of the real estate market is different. Office property has a vacancy rate of only 10 percent in Beijing - surprising given the great number of office towers that loom over the city. Luxury villas, however, have exceeded their limits and the government has been forced to deny any future loans for housing projects that include luxury villas. Empty or half-finished villas scatter the outskirts of Beijing, although foreign market apartments seem to have a more stable rate of sale/vacancy.
The government's call for intensified management over real estate credit has been one of the largest developments in the current Chinese real estate market. The policy, according to consultants, has been instituted to facilitate healthy advances in the market and balance supply and demand. Although the policy may harm single-project firms, in the long-run large developers will benefit. Larger firms may then be able to operate more efficiently, ultimately allowing the consumers to benefit.
It is estimated that the number of villas priced at over 5 million yuan ($600,000) will be 7,000 in the next two years. The total sales volume of luxury villas is projected to be around 30 billion yuan - a substantial part of Beijing's total sales volume estimate of 45 billion yuan. This huge gap poses a complex problem for the government, which hopes to improve real estate conditions for the poor without undercutting the rich. This high risk aspect of the economy has increased trepidation among investors.
China's luxury real estate problem now includes almost all of the country's urban areas, but Beijing still is the most worrisome. Five of the country's ten most expensive villas are in the capital. Foreign companies and embassies often rent such real estate for their employees, but the local Chinese who live in these affluent homes are at the uppermost echelons of society.
China's economic growth has had many toothaches, and real estate is one of the most painful. For now the government needs to step cautiously, regulating the market without harming development.
Gregory Meiselbach is a freshman who has not yet declared a major.
