What do you think of when it comes to property in China? Gleaming skyscrapers, “quaint” replica European towns, property tycoons, struggling migrants living in crowded squalor or abandoned ‘ghost cities’? China’s property market is home to its fair share of fascinating contradictions, however with residential real estate and construction accounting for over 10% of China’s GDP, taking the time to cut through the complexity and understand this dynamic market is a great investment. Get a head start with these buzzwords!
Ghost Cities – gui cheng 鬼城
This phenomenon only looks set to grow, with over 90% of local-level cities planning the construction of new districts. Often the breakneck construction of these cities is completed before surrounding infrastructure and migration have had the chance to catch up, leaving behind barely inhabited shells of cities. Resistance to this relentless top-down tide of property development has given rise to the phenomenon of China’s so-called nail houses (dingzihu 钉子户); whereby property owners refuse to accept the relocation compensation offered to them by developers – leaving homes and families stranded in the midst of gleaming new developments.
China’s ghost cities have often been dismissed as evidence of China’s poor urban planning and the overreaching of the state when it comes to urban development. International onlookers have even creatively suggested that the empty cities could be used as a solution to Europe’s migrant crisis. However, is this negative perception of China’s ghost cities really accurate? In reality, perhaps it is better to look at China’s empty cities as the blueprints for China’s future urban landscape. Whilst at present, many of the properties stand unoccupied, new developments are never short of investors and buyers, with an estimated 39% of individual wealth in China being stored in housing and 21% of urban households owning more than one home. Therefore, although China’s ghost cities may stand empty for many years to come, they are far from devoid of purpose, and indeed serve a powerful economic function for both their investors and the future generations that will come to inhabit them.
International Property Investment – zhong guo mai fang tuan 中国买房团
Who should we look to for the next movers and shakers of the international property market? Look no further than the Middle Kingdom! According to international real estate firm, Knight Frank, Chinese real estate investment into the global market climbed to US $16.9 billion in 2014, a huge increase of 205% from 2012. Whilst in the first quarter of 2015 Chinese property investors have already racked up over US$5.5 billion in investments. The US tops the list of Chinese investors favoured locations for international property investment, followed by Australia, Canada, the UK and New Zealand. Looking ahead, ‘exotic’ locations including, Johannesburg, Dubai and Lisbon are also gaining traction with increasingly internationally confident Chinese investors.
International property investment by Mainland Chinese investors is driven by a myriad of factors, often going hand-in-hand with migration. The most significant factor driving Chinese to buy property abroad is education, with Chinese parents viewing overseas property as a keystone investment in their children’s education. This is reflected in strong Chinese interest in cities which are home to prestigious universities and schools, such as Palo Alto. Other factors include pollution and food safety. With Chinese consumers deemed the world’s most health-conscious, those financially able to leave China are often eager to invest in a refuge from these concerns abroad. Financial returns are another key factor; China’s wealthiest invest on average 16% of their total wealth abroad, with real estate the investment of choice. For these high net-worth individuals, an international property portfolio safely stores financial assets outside of China, sets the stage for the “purchase” of foreign citizenship, and of course, is a much aspired status symbol.
As Chinese investors have grown to become a progressively influential force in the global property circuit, international companies and real estate firms savvy in the use of Chinese social media are seeing the pay offs. One notable example can be found in last year’s news story of a New York based realtor who brokered a $13 million property deal with a little help from China’s social media giant, WeChat. Companies such as Juwai – a leading online real estate portal targeting Chinese buyers looking for properties abroad – have also sprung up to bridge the gap between Chinese buyers and international real estate marketers. In this context, Chinese social media acts as a catalyst connecting investors in China and overseas agents, functioning to smooth high-stake transactions by engaging Chinese investors on a digital playing field with which they are already intimate.
Ant Tribe (yizu 蚁族) and Rat Tribe (shu zu 鼠族)
The term Ant Tribe refers to graduates who have migrated to large cities with the goal of pursuing their professional and personal development. In order to stay in large cities with the best opportunities, these highly skilled graduates are forced to settle for accommodation in poor and deprived areas on the outskirts of large cities. Beijing alone is estimated to have over 160,000 Ant Tribe members, with around a third having graduated from China’s most prestigious universities. However without guanxi 关系, Ants often struggle to gain a foothold in China’s competitive job market, losing out to their better connected urban peers who earn on average 20% more than their rural counterparts. The Ant Tribe is nicknamed so as they live in crowded ‘colonies’, are highly intelligent and hardworking, yet their skills and talents are not utilised, with members of the tribe enduring an anonymous existence in large cities already saturated with migrant labour.
The Rat Tribe, on the other hand, is largely composed of unskilled service workers who have migrated from rural to urban areas in search of work. As a result of soaring housing prices and bureaucratic obstacles, these workers rent cheap underground basement accommodation so as to save money and live close to their workplaces. Mazes of underground properties, which previously functioned as bomb shelters in the Mao era, are common in many Chinese cities, following privatisation and conversion, these properties have since become part of an officially illegal but highly lucrative property market. Whilst the existence of the Rat Tribe may be invisible to casual onlookers, the practice is surprisingly widespread – for example it is estimated that 5% of Beijingers live in underground properties.
Both the Ant and Rat Tribes are victims of China’s urban-rural divide, the maleffects of which have been inflamed by the Hukou 户口 system which undercuts the social security benefits offered to China’s 260 million migrants. As China’s economy has boomed, deeply entrenched inequalities within Chinese society have become increasingly ingrained and are experienced by both skilled and unskilled workers. However, there are signs that this traditional migrant paradigm is undergoing a transformation. As housing prices in China’s mega-metropolises have soared, and China’s second and third tier cities have emerged to offer increasingly dynamic economic prospects, many of China’s rural migrants are choosing to forego China’s large cities in favour of their home provinces. It will be fascinating to observe how this ‘tide of return’, hui xiang chao 回乡潮, will reshape China’s consumer culture and geography should it continue to grow.