The 'forced' disappearance of the middle class

By Ren Zhongxi, Wang Mengru
0 CommentsPrint E-mail, January 21, 2010
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Lin started looking to buy an apartment in 2007 as he prepared to marry. His ideal home would not be too small – they wanted enough room to live with parents and child. Lin had 300,000 yuan (US$44,000) saved, which was already not enough for a down payment on a 100-square-meter apartment in downtown Beijing at the time.

According to the National Bureau of Statistics, housing prices in 70 cities rose 7.6 percent from 2006 to 2007. Inside Beijing's Fourth Ring Road, the price was almost 20,000 yuan (US$2,929) per square meter (it was 7,000 yuan, or US$1,025, in the suburbs). In just one month in 2007, housing prices jumped 3,000 yuan per square meter.

Lin was frustrated. No matter how much he earned, he couldn't keep up with the rising housing prices. He decided to wait, but his future mother-in-law pressured him. "No house means no home," she said. Lin was not alone. Gu Yunchang, vice chairman of China Real Estate Research Association, said last September that "mother-in-law's rigid demand" caused the rising housing prices.

Lin bought a 120-square-meter apartment outside Beijing's Fifth Ring Road at the end of 2008 for 2.2 million yuan (US$322,000). He had to borrow 200,000 yuan from his father – his father's life savings. According to a 2009 survey, more than half of homebuyers use their parents' savings to buy houses.

Lin now pays 80 percent of his salary every month for his home. He will need to spend more than 9,300 yuan a month for the next 25 years to pay off his home. He sold his car, and Yufei hasn't bought any new clothes in six months. They no longer dine out or travel. Lin dares not make any mistake at his job. He and Yufei's discretionary spending is limited to 1,000 yuan (US$146).

The number of middle-class people like Lin who bear the burden of paying off unaffordable homes is huge. In December 2009, China Newsweek conducted an investigation of 1,658 middle-class citizens in 10 cities. It found that 61.6 percent of homebuyers paid 30 percent more of their incomes than the reasonable amount, 20.5 percent pay more than half of their incomes on housing loans, and 43.8 percent feel great pressure and worry about loan defaults.

According to international convention, a reasonable loan should be 20 percent to 30 percent of a family's income. The price of a house should be three to six times a family's income. A home 10 times a family's income is unaffordable. Housing prices in China are 15 times the average family income, according to the 2008 China Statistical Yearbook. In Beijing, prices are 23 times more.

Statistics show that housing prices in the 70 big and middle-sized cities increased 25.3 percent from June to November 2009. In Beijing, the price of many apartments rose by more than 50 percent. Meanwhile, in the first 10 months of 2009, the average disposable income of urban residents in Beijing was 22,316 yuan, an 8.1-percent increase over the same period in 2007.

Zhong Wei, director of the Financial Research Center at Beijing Normal University, said housing prices in the 70 cities will double in the next five to eight years, while income will not keep up. The middle class may be wiped out of the group of people who can afford homes in China.

Li Kaifa, standing director of China Enterprise Reform and Development Society, said an apartment can destroy a middle-class family, and if this kind of phenomenon continues to exist, an outstanding young man's buying ability can easily be deprived.

(The Chinese version of this article was published in China Newsweek, and translated and edited by Ren Zhongxi and Wang Mengru.)


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