Why people rush to buy homes even amid price bubble

Fall is often considered the best season for the resale of houses in Beijing. After months of search, potential homebuyers finally decide to take the plunge before the year ends while sellers become more realistic, tired as they are of allowing strangers into their bedrooms to check out the house, about striking deal.

Yet the current frenzied home sales at stratospheric prices have surprised even some seasoned property agents, who say there are now only two kinds of homeowners: those who have just sold and bought homes and those who plan to do so soon.

The gains from selling one's house appear more attractive than ever. In the last five years, home prices have increased by three to four times in Beijing. In my neighborhood on the eastern edge of the city, a typical two-bedroom apartment with an area of about 100 square meters now sells for 4.2 million yuan ($688,400), five times more than what it cost in 2008 when the housing estate was launched.

But after cashing in on the upwardly mobile market, why would people still rush to buy another home at a record price instead of relaxing a bit and waiting for the market to cool down? For instance, the yearly rent for the two-bedroom flat in my compound is now about half the income from interest, that is, if the seller deposits all his/her proceeds in a State-owned bank.

The reasons are simple. First and foremost, the rush is fueled by the popular belief that housing prices will not fall despite repeated government cooling measures. It's true that the important political meeting round the corner could point out a new direction for the real estate sector, but still many believe future policies will only make it more difficult to own a home as prices will never drop because high land and housing prices are an important source of government revenue.

Over the years, the government has tried to curb the price rise by imposing a series of conditions on purchase. But each time, after a short, slight dip, prices have rebounded with a vengeance, leaving the optimists cursing their gullibility and slow moves.

Property remains the best investment vehicle. While early homebuyers could laugh their way to the bank, the experience of most Chinese stock investors has long been one of frustration, anger, regret and shame.

Almost 70 percent respondents to a recent survey said they had lost more than 10 percent of their total investments in the domestic stock market, with 40 percent complaining that more than half of their investments had evaporated.

Furthermore, property is not just for the wealthy to park their funds in to get high returns. Many working people have painfully realized that a house could become their nesting egg after retirement, especially after the government has decided to try reverse mortgage which allows elderly people to borrow against the value of their home, possibly to supplement future pension deficits. It thus makes sense to go for costlier and better-located homes with easy access to amenities, even if that means one has to become a slave to mortgage for another 10 years or more.

So what about first-time buyers who dream of a place they can call home in Beijing or Shanghai or any other major city where they work and live? It's common for parents to dish out the down payment for apartments, assuming their children will pay for the mortgage for the rest of their working lives. In one extreme example of desperation, a software designer from a poor family tried to rob a bank in Beijing in April to foot the down payment of 310,000 yuan for an apartment that he had promised his girlfriend.

The housing bubble will eventually burst, which will indeed have a serious impact on the economy and millions of homeowners. But not yet.

The writer is editor-at-large of China Daily.