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In fact, China’s soaring house prices in the past decade is the only way for a large economy to develop at a high speed, and many developed economies have experienced it. With the gradual stabilization of economic development, house prices will also return to the normal state.
In 2018, the Organization for Economic Cooperation and Development (OECD) compared house prices and incomes in high-income countries around the world. The algorithm of this value is to take the median of the national house price and income of that year, and then divide them. It can also be seen from this algorithm that the higher the ratio, the higher the relative income of house prices, the more difficult it is for the salaried class to afford.
However, due to the differences among countries and between developing and developed countries, in order to make the data more meaningful, OECD made a small adjustment to the algorithm to make it easier for member countries to compare each other: take the 2015 price-to-income ratio as the benchmark value of 100, and give last year’s figure according to the proportion of growth.
After a series of operations by OECD statisticians, the figure for Canada in 2018 is 122.9, which means that the growth of house prices in Canada in 2018 is 22.9% higher than that of income, and wages will never catch up with house prices. This is not new in China, but given that we are a large developing economy and the property also carries the added value of hukou, school status, health care and real estate traditions, it is not surprising that the premium is high. On the contrary, it is unusual for real estate to rise faster than other incomes in advanced economies.
Among the many developed country members of the OECD, Portugal is next to Canada with 117.7, followed by Slovenia with 116.2. The British housing market, which is already considered a super bubble in Europe’s major economies, is only 107.8. For Canadian tenants who have never seen the world of China, the increase is already terrible.
This kind of increase is not a day or two. The second half of last year was a year when the ratio of house prices to income in Canada rose relatively slowly. 2016-2017 was the miracle period of the Canadian housing market, with the price-to-income ratio rising by 3% or 4% every quarter. But there is still a steady stream of buyers, pushing up prices even higher. The increase in house prices slowed down in 2018, thanks to the government’s macro-control, the policy of 20% deposit, and the promotion of customer loan stress tests in the banking system (what is surprising to the Chinese is that they have not had a down payment and repayment ability evaluation system for a long time in the past? This is the only way to keep the deal hot.
If you look at this round of rally on a larger time scale, this strange rally has already occurred as early as 2012. The volume of real estate transactions in Canada has been rising since the end of 2012, reaching an all-time high in mid-2016, when the price-to-income ratio soared in Canada.
It was in 2016 that Canada’s real estate industry accounted for half of the country’s economy, with real estate yields as high as 30% in some areas. It should be noted at any time that this is in the developed country Canada, the era of high profitability of urban real estate in the process of economic development has passed, and can not be compared with China’s experience in the past decade. Also because it is a developed economy, there is little room for growth in other industries in Canada, with GDP growth of only 1.4% that year, and buying a house has suddenly become the best investment target.