A weekend topic starting with the Wall Street Journal. "Even the coronavirus hasn’t stopped the world’s biggest asset bubble from getting bigger. After a brief pause during coronavirus lockdowns in February, a Chinese property boom in some megacities that many thought was unsustainable has resumed its relentless upward climb, with prices rising higher and investors chasing deals despite millions of job losses and other economic problems."

"The resulting asset bubble, many economists say, now eclipses the one in U.S. housing in the 2000s. At the peak of the U.S. property boom, about $900 billion a year was being invested in residential real estate. In the 12 months ended in June, about $1.4 trillion was invested in Chinese housing."

"The total value of Chinese homes and developers’ inventory hit $52 trillion in 2019, according to Goldman Sachs Group Inc., twice the size of the U.S. residential market and outstripping even the entire U.S. bond market. After a decade of rapid home-sales growth, fueled by borrowing, China’s household leverage ratio hit a record high of 57.7% in the first quarter. It was the biggest quarterly jump in the ratio, which measures families’ mortgage, consumer and other debts relative to gross domestic product, since the first quarter of 2010."

"'Property has hijacked China’s economy, so the government wouldn’t dare to push for a plunge in housing prices, even if that’s the most effective way to deflate the bubble,' said Chen Zhiyu, who works for an American retailer and is looking to purchase a property in Shenzhen. 'You gotta follow the money.'"

"Sales activity is also being driven by cash-strapped developers and the local governments that sell them land. Both need to gin up revenue to pay down debts or offset other problems, and are cooking up more incentives to move properties."

"About 21% of homes in urban China were vacant in 2017—a very high proportion relative to international standards—which equated to 65 million empty units, according to the most recent data from China Household Finance Survey. Among families who owned two properties, the vacancy rate reached 39.4%, and among those that owned three or more, 48.2% were empty."

"Rental yields—the proportion of a property’s value made annually by renting it out—are below 2% in major cities like Beijing, Shanghai, Shenzhen and Chengdu, less than can be made buying Chinese government bonds."

"As recently as the 1990s, it was illegal under China’s communist system for most people to own homes. A State Council decision in 1998 abandoned the country’s system of employer-allocated housing, and homeownership took off. By late last year, about 96% of China’s urban households owned at least one home, according to a Chinese central bank survey released in April."

"Average home prices across China reached 9.3 times average income in 2018, according to the Chinese Academy of Social Sciences, compared with 8.4 in San Francisco. In Tianjin, a city of 15 million southeast of Beijing, apartments in upscale areas sell for around $9,000 a square meter, or about $836 a square foot, according to real-estate services company Savills PLC. That is roughly the price an average buyer would pay in some of the most expensive parts of London, even though disposable incomes are seven times as high in London as in Tianjin."

"In essence, urban Chinese have bet everything on their homes. They now have nearly 78% of their wealth tied up in residential property, versus 35% in the U.S. 'While local governments are under pressure to prevent further surges in housing prices, what scares them more is a sharp decline,' said Gao Fei, general manager at real-estate firm Centaline Group in Tianjin. They can ill afford to let the market go down. Income from land sales and related taxes on developers accounted for 52.9% of local governments’ revenue in 2019, a record high."

"Yin Haiping, who runs a property consulting firm in Shenzhen, said fear of losing out is driving more buyers to look now, with home prices in some desirable areas up by at least 10% this year. Xu Xiaohua, a university lecturer in Tianjin who already owns a property there, just bought another apartment this month in Shenzhen. He paid 6.5 million yuan ($913,050) in cash in early May for the 50-square-meter (538-square-foot) property after checking out about a dozen apartments within a week."

"He said he thinks most Chinese will park their wealth in real estate during downturns. 'The worse China’s economy turns,' he said, 'the higher property prices in places like Shenzhen will climb.'"

From The Beijinger. "CCTV Finance reported last week that rental rates across Beijing plunged by nearly 20 percent in June, with Daxing and Fengtai districts – the two epicenters of the city’s recent COVID-19 flare-up – experiencing the most precipitous drops in demand at 41.7 percent and 37.1 percent, respectively."

"Moreover, between Jun 15-21, the rental market’s total volume dipped more than a third, and average rental prices saw a 15 percent reduction, according to statistics from rental company Lianjia and cited by Global Times. To put that in perspective, the average rental price for a three-bedroom apartment in Chaoyang District has fallen nearly RMB 2,000 per month, while two-bedroom units have been slashed by about RMB 1,000."

"Traditionally, June and July are a boon to the rental industry, as roughly 8.74 million students graduate from college and seek housing off-campus. While some insiders are still banking on this annual influx to help the market rebound, others are more skeptical given that many graduates haven’t even returned to the city due to myriad travel restrictions, moratoriums on returning to campuses, and a lack of job prospects."

"Over the past few months, it’s been difficult not only for landlords and property owners to find tenants, but also for tenants to make rent as the pandemic led to labor shortages, layoffs and reduced salaries. Some landlords responded in kind by lowering rents up to 20 percent, however, not everyone was so lucky and some tenants were simply required to end their contract or default on their payments."

"Even still, since the Spring Festival holiday – when it became increasingly clear that the coronavirus was going to disrupt every facet of life – landlords have seen an average two-month wait time between listing and leasing their properties, a significantly longer gap than this time last year."