Lets get down and dirty on how the real estate market works in China.

First, China has a system called Gong Ji Jin. This system is like a forced savings for housing. If you do not own a house this money keeps accumulating and you have no access to this money until you buy a house. It is divided into three different categories. A is about 44% of the salary, B is 36% of the salary, and C is 28% of the salary. The employee can chose which one to save. Usually office workers save in the 44% category while operators will save in the 28% category. For the Chinese people, this money is not even considered as part of the disposable salary. It is gone. Then, Chinese people will save 50% of the remaining salary.

Let’s play with the numbers. I am an office worker in some tier 1 city. I make about 5000 RMB. I am a single guy and I am looking for a small flat, maybe a one bedroom apartment. I find one for say 600,000 RMB for 60 square meters. (10,000 RMB per meter). I have been saving in Gong Ji Jin for four years working. So $2200 go into my Gong Ji Jin every month. Suppose I never got a raise for four years. I would have 105,600 RMB in my Gong Ji Jin account. I come from a one child household and my family has also been saving for my apartment. Maybe my parents give me another 100,000 RMB for my apartment. So I put a 205,600 RMB down payment and finance 394,400 RMB. In China, I pay no PMI and no property taxes. My monthly payment will be 2,492.88 RMB per month. My Gong Ji Jing will pay $2200 of this mortgage monthly and I will pay only $292.88 from my salary. It beats spending 700 RMB on rent, paying Gong Ji Jin that I do not see, and now I own my home. This is a true example.

When people are married, their Gong Ji Jin gets pooled together so a family can actually afford a bigger place to live and take on a bigger monthly payment, would be double of my example. Also, their parents will help with a down payment, two sets. Office workers in tier one cities with college degree make about 3000+ RMB.

Yes housing is expensive in China. What the increase in housing is actually doing is decreasing the disposable income from the salary of millions of Chinese workers. The Gong Ji Jin used to be able to pay for the house. Now it takes the Gong Ji Jin and some of the salary to pay for the house. This problem means less income to buy goods and/or save.

- dkchinabiker

Related Posts:

• If each homeowner had to pay the taxes in a lump sum each year, there would be riots.
• Many of the TBTF banks hold significant numbers of mortgages on their books at values well above their actual value.
• China will not do what Japan did in the 1980th to appreciate its currency under US pressure.
• I was recently in China, real estate prices are absurdly high.
• 2010 will bring more mortgage resets, more foreclosures, and larger unsold housing inventory.

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