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.