Much of the increase reflects the construction of new luxury housing and second homes for the city’s wealthiest residents. Concerned that real estate speculation is putting housing out of reach for a growing portion of the population, the government is taking steps to deter speculation and encourage construction of low-income housing. One has to question whether families are making concerted efforts to save more and spend less, and whether this affects housing lifestyles. Up until now, consumers have been spending money while still cutting down on debt, according to Standard & Poor’s economists. Consumers are becoming less scared and are starting to borrow and spend again, said S&P’s economists.
The cutback in household debt, which dropped to 122% of disposable income in the third quarter of 2010 from a record 134% at the beginning of 2008, is healthy in the long run. The extension of all the tax cuts is a positive for now, but eventually the government will have to raise taxes, in our opinion.
We do know that banks are no longer offering new mortgages with little or no down payments on a purchased home. Banks’ credit guidelines are now more conservative in determining whether a family qualifies for a mortgage. Perhaps the only way for Chinese families to return to their historical levels of wealth is to save 5% or more of their future income over the next decade, in our opinion. In addition, risk tolerance levels are now much lower, as families’ college or retirement nest eggs have declined significantly over the last several years. In 2010, China’s government ordered that70% of new apartments built is smaller than90 square meters, in hopes of diverting more investment into increasing the supply of affordable housing. Several other measures to increase taxes on short-term property gains and limit new mortgages have also been passed since 2009. While local officials often ignored many of these measures in the past, the federal government is now sending teams of inspectors out to monitor compliance.