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I just got a print issue of the Real Estate Issue(pdf) of the Matthews Funds Asia Now publication that gets sent out with their funds’ quarterly reports. Matthews has a number of funds, including Matthews Asia Pacific Fund (MPACX), Matthews Pacific Tiger Fund (MAPTX), Matthews China Fund (MCHFX). Disclosure: I am a small investor in one of their funds.

The publication has a series of cool charts about the Asian Residential Real Estate market that helps paint an overall picture of the market. I encourage you to download the PDF to get more charts and more commentary on comparative real estate across Asian countries.

1. China has the highest rate of home “ownership”* in Asia, similar to the United States

I was surprised to find that 80% of people in China feel that they own their own property. According to the article, some 80% of Chinese citizens own* their property, but with an asterisk-about half of the property owners only have “usage rights” not “fully transferable rights.”

Chart 1: % of population by Asian country that owns their own home or property

2. Housing is least affordable in Shanghai, compared to other major Asian cities

Based on 2006 data, the report states that average Shanghai real estate condo pricing is lower than most other cities, but is at a stratospheric 16.6 times average income. I wonder if this data is already out of date.

Chart 2: Regional Condo Pricing and Affordability in Asian Cities, 2006

By the way, because US property is generally calculated in USD per square foot and Chinese property is generally calculated in RMB per square meter, I always struggle to convert something like RMB10,000 per sq. meter into the USD per sq. foot equivalent.

Here are the conversion factors for easy reference:

• 1 foot = 0.3048 meters
• 1 meter = 3.2808 feet
• 1 sq. meter = 10.7584 sq. feet
• 1 sq. feet = 0.0929 sq. feet
• 1 USD = 7.016 RMB (for now)
• 1 RMB = 0.1425 USD (for now)

Here are some example sizes and prices with conversions:

• 90 sq. meter = 968 sq. feet
• 150 sq. meter = 1613 sq. feet
• 10,000 RMB psm (per sq. meter) = $132 psf (per sq. foot)
• 30,000 RMB psm = $397 psf
• 2 MM RMB = $280k USD

So a 150 sq. meter apartment for 30,000 RMB psm = RMB 4.5 mm = USD $641k, or $397 psf. I hear this is what you might spend to buy in the poshest, most convenient locations in Shanghai and Beijing these days! Of course the market is very segmented…these price levels represent luxury housing prices.

3. Rapid increase in Mortgage Lending is key factor in driving home ownership.

According to the article, China’s banks have over RMB $3 trillion (about USD $396 billion) in outstanding mortgages.

Chart 3: Growth of Mortgage Lending in China (in US $Billions)

Even with this growth, the chart below suggests that only 17% of middle class Chinese live in a house that is financed with a mortgage. The bulk is financed with savings and other forms of borrowing (from relatives?).

Chart 4: Middle Class Chinese Source of Funds and When They Refurbished

Chart 5: Comparison Chart of Financing Asian Real Estate

This chart compares typical downpayment, mortgage length, interest rates, availability of fixed mortgages, and capital gains rate.

There are some regulations around the downpayment amounts. According to the article, homes that are larger than 90 sq. meters need a 30% downpayment but smaller than 90 sq. meters only require 20% minimum. Also, there are transaction taxes levied on people who try to sell the home within five years of the date of purchase.

By the way, there are significant restrictions around eligibility for purchasing residential real estate. At this time, I’m told that one year residency in China is required before a foreigner is allowed to buy real estate. There may be other methods that qualify foreigners for real estate purchase, but I haven’t researched it further. This area is very dynamic and I hope to post more on this topic should I find the need to research it myself.

Regarding real property ownership, there is a detailed four part series on the 2007 China Property Law at China Law Blog. Part 1 provides a general introduction. Part 2 begins to summarize first part the law. Part 3 summarizes the second part of the law, real property ownership rights. Part 4 covers real property use rights.

4. What does a housing bubble look like in Asia? Case Study: Japan

Everything is on the up and up in China, but real estate is cyclical. The Japanese chart shows why Japanese are much less optimistic about real estate (though that may be changing). According to the article:

The protracted asset deflation has had a dulling effect on Japan’s consumer psyche that has spread throughout the economy. Unlike the U.S. Japan’s situation has long discouraged people from investing in property and made them cautious about spending in general. A generation of Japanese has lived for years with the expectation that property value only goes down. Such psychology can be slow to change.

Japanese demographics are very different from China or the US. But the Japanese example is a cautionary tale to both property owners in the US and Chinese real estate owners and speculators.

Do you think there is a property bubble in China? In what cities and at what price levels of the market?