In China, the weather has been hot, but the property market has been hotter. Last weekend, more than 10,000 people lined up to try to buy a home in Hangzhou, the capital of Zhejiang province in east China – and the queue stretched for more than one kilometer, according to mainland press reports.
These people were prepared to pay at least half a million yuan (US$77,793) for a ballot at two residential sites a 50 minute drive from the city center.
And don’t blame the Alibaba Group, which picked Hangzhou for its headquarters and helped spur the city’s growth. Similar scenes were seen in other second-tier cities such as Tianjin, Chengdu, Guiyang, Foshan and Xi’an.
This rush to buy happened despite Beijing unveiling more than 125 measures to try to cool the property market after President Xi Jinping ordered stringent steps be taken last October, when he said “a home is for residence, not for speculation.”
Interestingly, the provincial scramble for property indirectly helps provincial governments raise income by unloading property at good prices.
When more than 300,000 residents from other cities applied for Tianjin’s talent recruitment program a day after it was launched on May 16 – more than 5,800 cases were cleared by May 21 – the property agency volume surged in May.
Likewise, after the launch of a talent program in Chengdu, more than 70,000 people signed up for a new 1,000-unit residential project by China Railway in early May.
While the underlying demand in the world’s most populated country cannot be underestimated, the surge in home prices can be simply explained by the proof of a popular economic theory in China.
It says that the property and equity market in China were inverse and correlated and therefore a lukewarm equity market as seen in the past few months spurred capital to chase the brick and mortar market.
This theory to explain the economic cycle in China seemed to work again this year.