Dispatch from China: Home Ownership Blues in Beijing

For the next three weeks, I am traveling in China, reporting on a few larger themes, but also posting occasional dispatches when people or places that I encounter illuminate trends in the news, or how history is experienced on a personal level.

Within Beijing’s upscale SoHo district — a residential and shopping area aspiring to the chic status of its New York namesake — sits a four-story mega-Starbucks. A dramatic winding staircase connects its four levels; the free magazine stand by the counter stocks Esquire’s China edition. The tables are crowded with well-heeled laptop-users in their 20s and 30s, often working alone (not the usual work mode in China), as well small groups pouring over Powerpoint slides and spreadsheets. The coffee shop is a favorite haunt for young Beijing professionals.

The walls of the flagship Starbucks are all glass, affording a view out on a complex of identical apartment buildings with distinctive white frames and a string of upscale stores and restaurants on the ground level. Across the sidewalk is Bally Total Fitness Beijing.

As in New York, the people who come here are very interested in real estate. They have been drawn to this spot, from across the heartland of a vast country, by a mix of opportunity, wanderlust, and ambition. China’s East Coast professionals tend to see Beijing and Shanghai the way the French see Paris; there is Paris, and then there is everything else.

But it is becoming harder and harder for new arrivals to get a foothold in the housing market. On Wednesday, the government announced that property values across China had risen faster last month than any time in the past five years. The surge is particularly acute in Beijing. "Beijing’s housing market is really a nationwide housing market," China analyst Bill Bishop observes. "Every person with means in China wants to buy in Beijing. Beijing is the center of power, it has the best education system in the country and it has the best health system."

China’s soaring home prices have lately provoked speculation as to whether we’re seeing another real estate bubble on the verge of bursting. Top hedge fund manager Jim Chanos recently told "The Charlie Rose Show" that China’s property market is "on a treadmill to hell" that he expects to "run its course" later this year, or early next. Much of the recent price hike has been triggered by speculators snatching up new apartments, often leaving them vacant, with an eye to sell later at substantial margins. With an immature stock market and few reliable long-term investment opportunities in China, real estate is overstressed as one of the few investment games in town.

Meanwhile, current home prices make young Chinese professionals worry whether there will be a place for them. Chen "Aggie," a young woman with a job in marketing sipping coffee at the SoHo Starbucks, said that the prices of several condos she had visited last fall had already risen 150 percent. Wearing a trendy tight white shirt and jeans, she nursed her mug of coffee Americano. Chen says doesn’t feel she has the savings and job security to purchase now, but also worries that if she doesn’t, she’ll lose her chance forever. Her expectations are fairly modest – a one bedroom flat, with a small kitchen would be fine – yet owning her own place "would make me settle down" and feel more secure. Among her peers, home ownership is part of the new Chinese dream. Last fall 80 percent of respondents to a China Youth Daily online poll said that home ownership was necessary for happiness.

For now, though, that dream seems out of reach. Even renting in Beijing is a stretch. The old benchmark, that young professionals should contribute one-quarter of their salaries toward housing, now seems unrealistic. Chen says she takes advantage of a new government-sponsored plan by which her employer contributes 12.5 percent of her salary to her rental expenses. The same allowance could also be directed toward a mortgage. "In some ways, it has become easier," she says, "to get money from the government since the financial troubles in 2008."

Chen is not originally from Beijing, but from a small village in the western province of Guizhou. Her parents were shopkeepers. She came to Beijing seven years ago for college, and has since made the great leap forward so many families in China hope for their children: moving from blue-collar to a white-collar job. The fact that she has been able to do so is testament to a certain meritocratic strand of modern Chinese culture.

But real estate is where the dream of upward mobility scrapes against hard reality. One of China’s most popular TV shows – until it was recently banned- was called "Wo Ju," roughly translated as both "Snail House" and "Narrow Dwelling." The series followed the travails of a young professional couple struggling to buy an apartment in a city resembling Shanghai. As the lead character Hai Ping described his situation: "Every morning when I wake up, a bunch of numbers bounce in front of my eyes: 6,000 yuan for housing loans, 2,500 yuan for daily necessities, 600 yuan for social activities, 500 yuan for transportation fees and 400 yuan for property fees." The show sparked heated debate within China. Chinese writer Xiao Fuxing, for instance, has labeled the equation of home ownership with happiness as a "thorn" in Chinese society. The fact that "Wo Ju" was later banned is testament to how deeply it touched a nerve with China’s aspiring classes.

Home ownership in China is not as meritocratic as it seems. Most of Chen’s friends who were able to purchase homes had received most of the down-payment money from their parents (a popular joke here is that ambitious mothers-in-law in China are the chief drivers of rising property values). But as Chen’s parents are poor, she has no help. Unlike in the United States, where down payments were often small, at least before the financial crash, in China the down payment may exceed that of the mortgage value – requiring a lot of cash up front. This favors speculators and old money. "I had many dreams when I first came to Beijing," Chen says, tucking a strand of long hair behind one ear. "I work hard, but I think, for me, this hope is an illusion."

She and a friend from her province have lately begun to discuss what they might do for work if they return home.