You are here

In China's debt-laden Xiamen, real estate boom chokes consumption


YANG Xiaodao, a 26-year-old civil servant in the Chinese city of Xiamen, says taking out a 30-year-mortgage on a two-bedroom apartment with her husband was the most regrettable decision of her life.

Although their parents covered the 1.5 million yuan (S$305,900) down payment on the 2.9 million yuan flat, mortgage payments eat up more than 70 per cent of the couple's combined income of about 10,000 yuan a month - the average for this city.

She said: "Our spending power has plummeted. We do not dare to have a kid. We do not dare to buy a car. We do not dare to travel."

Throughout China, home prices that are among the highest in the world relative to incomes have pushed millions of households to debt levels similar to those seen in the US just before its housing crisis, said a study by the Institute for Advanced Research at the Shanghai University of Finance and Economics.

Your feedback is important to us

Tell us what you think. Email us at

Economists are sounding the alarm that such debt has started to crimp consumption, undermining Beijing's plan to lean on domestic demand to drive growth amid a heated trade dispute with the US.

Wang Jun, chief economist at Zhongyuan Bank in Beijing, says slowing income growth and high household borrowing levels will limit how much consumers can boost economic growth in the short term.

"Pressure from mortgages is impacting the amount of disposable income available to spend elsewhere," he said.

Xiamen, a prosperous coastal city in Fujian province, stands out: its four million residents are the most indebted of any large city in China, said a Reuters analysis.

Known for warm weather, seafood and a laid-back lifestyle, Xiamen is the country's fourth-most-expensive real-estate market, despite incomes being significantly lower than in cities with comparable home prices.

Wang Yanwu, an assistant professor at Xiamen University's School of Economics, said: "An influx of property speculators from other cities to the province, attracted by Xiamen's lifestyle, have driven property prices to record highs, causing panic buying among locals."

Xiamen is now crowded with recently built high-rises, and the local government is promoting development in surrounding districts off the main island.

The city's new home prices rose 53 per cent between 2015 and June, or 19 per cent annually, the most among 70 cities tracked by China's National Bureau of Statistics.

Disposable income growth in Xiamen averaged 8.4 per cent in the same period, but nation-wide, new home prices have risen 20.7 per cent since 2015, according to Reuters calculations based on official data.

In an alarming sign for home owners, home sales in Xiamen slumped after new rules restricted purchases and prices of existing homes fell 4.8 per cent in the year to June, compared with a 3.9 per cent average increase for 70 large cities in the same period.

The affordability gap is wide in Xiamen: a 90 sq m home costs on average three million yuan, six times higher than the per capita income in the city. Even if buyers can afford a mortgage payment, at least 30 per cent of the value of a home is often required upfront. At the average price, that equals 60 years' worth of disposable income.

A dad of two aged 28, who identified himself only as Huang, said his parents and in-laws paid his two million yuan down payment last year, but the 8,000 yuan monthly mortgage leaves little to spend on much else.

The ratio of household debt in Xiamen hit 98 per cent of GDP at the end of last year, much higher than the national level of 55 per cent, and higher than the US household debt ratio of 79 per cent of GDP, according to the Bank of International Settlements.

The ratio of household debt to household savings in Xiamen is 182 per cent.

Zhongyuan Bank's Mr Wang said he was "definitely worried" about economic growth in H2. "There is a very good chance that consumption will continue to weaken."

Retail sales in Xiamen through the first five months of the year rose 9.2 per cent versus a year ago, below the national rate of 9.5 per cent and significantly slower than the 12.1 per cent registered in the same period a year ago.

More than half of Xiamen's large department stores and supermarkets suffered falls in revenue in the first quarter, data from the Xiamen statistics bureau showed. REUTERS

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to