How You Can Better Understand and Profit from the Chinese Real Estate Boom
China has undergone massive economic change in the past century. In the 1920s it was a rural farming country with little outside influence or power. Now it’s the world’s second largest economy and has the world’s largest middle class. China’s economy hasn’t grown for no reason either; the government has been trying to turn China into a superpower for more than a century. Recently however, what people have been taking notice of is China’s enormous real estate boom.
Here we’ll break down the basics of what is happening, why it is happening, and what you can do to profit from it.
Anticipating High Population Growth
When the population of a country like China increases, it usually means that more people will need a place to live than what’s available. With a fixed number of houses, and a larger amount of people who want them, the price of houses increases. Investors, knowing that higher population means more demand and a higher price for houses, will buy them before populations rise. This leads to houses becoming more valuable because both investors and people will buy them. That value encourages investors to buy even more, anticipating that another investor will buy their home from them at a higher price.
This process repeats until the prices of houses are so high that most people can’t afford to buy them. Because of that, houses and other property remain empty even if they are still owned by people. This goes so far that there are many cities with barely any people in them, called “ghost cities”.
A Subpar Stock Market Makes for a Great Real Estate Market
Because of many factors that influence the Chinese stock market, it doesn’t produce as much as the US stock market. Returns are smaller and much more erratic than other large countries’ stock markets. This makes it both more difficult and riskier for the average Chinese person to invest their money. For middle- and upper-class Chinese people who want to protect their wealth, the stock market is not a good option. But because the Chinese stock market is so lackluster, when Chinese people see another good opportunity to invest, they take it. That other opportunity is, in most cases, the Chinese Real Estate Market. Because of this whole new sector of buyers who want to protect their wealth, Chinese real estate booms even more.
Economic Growth Driven by Government-Backed Housing
When the Chinese government sees that houses have all increased in both demand and price, it also sees an opportunity. That opportunity is creating more jobs for their working class by getting them to build more high value homes for investors. So that is exactly what the Chinese government does. They fund big building projects to create luxury apartments and homes. This allows their citizens and investors a good place to put their money for growth. It has the added effect of stimulating their economy by a large amount. By some estimates real estate makes up between 20 and 30 percent of the Chinese economy.
How You Can Profit From the Century’s Biggest Boom
China is one of the fastest-growing economies in the world right now. With a population of over a billion and a rising middle and upper class, this makes sense. To keep this economy going, the Chinese government has a vested interest in keeping their citizens’ investments safe and strong. This means they will continue to build and develop land as long as they can. As long as China’s GDP continues to grow and people have a higher quality of life, there will be demand for more and better houses. And that demand will keep allowing Chinese real estate to grow. China is notoriously difficult to invest in, but if you can, buy property there. It’s one of the safest high-value investments a businessman can make. With a country as promising as China, everyone wants to have at least a small stake in their future.
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