China's Housing Demand Will Collapse In 10 Years, The Average Married Couple Will Inherit 6 Homes

China's demographic dividend is about to turn into a family planning created nightmare as the age cohort responsible for most home demand is set to plunge in the next decade. Due to the one-child policy, the average Chinese married couple will inherit 6 homes, so why would they buy a new home? Additionally, the urbanization trend is already decelerating and urbanization reduces fertility. (Also see: One Child Policy or Not, Fertility Rate Will Decline, Survey: Less Than One-Third of Chinese Want Second Child, and No Uptick In Fertility Despite Easing of One Child Policy)

The housing boom in Shenzhen this year and in Xiamen over the past year is related to demographics: these are by far the youngest cities in China. (Related: Shenzhen Rising and Regulators Already Losing Control As Policy Easing Sparks Speculative Fever in Housing)

The trend that we've already seen in China, and I believe is most likely, is that grandparents and parents will sell their homes to help their children by larger, higher quality homes in more desirable locations. (Low Fertility, Low Household Formation and High Real Estate Prices). At the end of the article, an official working on national housing data days there's a noticeably intensification of the brain drain effect in Beijing and Shanghai.

Below is my translation:

"One day, China will no longer have so many young people; inevitably there will be a day when China no longer needs so many houses." RegardingThe change in the demographic structure of the country in recent years, Beijing University of Technology economists professor Zhao laments.

The data verifies Zhao's judgment. Research shows the 90's generation has entered the main home buying population of 25 to 49 year-olds. However, according to the sixth national census data, the 80's generation is 228 million people, while the 90's generation is 174 million, 23% lower.

Meanwhile, statistics show that in 2010, China's home buyer age cohort was 547 million people. In 2015, the home buyer population peaks at 568 million, but the accelerated decline begins in 2018. By 2020 the cohort drops to around 543 million and by 2025 it falls to 500 million.

"Demographic factors affecting the real estate market are weakening support efforts. From now on, the structure of demand in the property market has changed, the fixed demand has already started to fall." According to Vice President of the China Society of Urban Economy Feng Shui Niu's analysis, in each of the past two years, the demographic indicators have reached a turning point, the Chinese labor force and the population of marriageable age people in cities work together to create a long-term downtrend in real estate.

For example, the sixth census shows a clear downtrend in the marriageable population, a downtrend in the number of 20-39 year-olds appeared in 2015. It is expected the number of newly married couples will decline from 13.5 million couples in 2013, down to 8 million couples in 2020, an average annual growth rate of negative 7%. And Marriage constitutes the largest portion of fixed demand in real estate.

"According to Centaline research and analysis, the higher the proportion of young people in the population, the more stable housing demand, and the more sustainable." Centaline research director Liu Yuan said.

AN example is Xiamen and Shenzhen. There's skyrocketing housing prices in Shenzhen this year, while Xiamen's year-on-year home prices increase is tops in the nation. The sixth national census data shows that the proportion of people 50 and over is very low in Shenzhen. The demographics of Xiamen are very close to Shenzhen's, the proportion of younger people is better than other cities.

However, Shenzhen and Xiamen are a special case, the sixth census data shows a sharp reduction in the proportion of 20-year-olds in nearly all cities.

In addition, over the past 20 years, China has seen 400 million people move from the city from the countryside, from small cities to the big cities.

"This wave of urbanization caused the largest ever Chinese migration and greatest change to the economic landscape, it also brought a rapid and disorderly rise in house prices." Sunshine 100 Chairman Di Yi said, but this demographic dividend has disappeared.

Looking at the urban population, the home buying cohort was 328 million in 2012, it peaks at 335 million peak in 2016, falls to 314 million by 2020 and then the decline accelerates, by 2030 the urban home buying population fall to about 250 million.

"China's urbanization has been rapid growth in the past, at present the total transfer of rural population to urban areas is relatively limited. At the same time, wages for most of the rural migrants is relatively low, hopes that urbanization will lift real estate purchasing power are not realistic." Dongxing Securities analyst Zheng Min Steel said.

Who will buy a house in ten years?

In 10 years a married couple will have 6 homes, who will buy?

Industry research shows, after China's aging intensifies, the third generation will inherit the parent's and grandparent's property. Due to the family planning system, most families have a "421" structure. Even if the older generations have only 1 home, the young married couple of the third generation will have 6 properties. Housing supply in the market will be far greater than the demand.

...Insiders point to overseas experience, after a long period when the demographic factors, urbanization and other factors reached an inflection point in real estate, real estate cycles see profound changes. The Japanese property market, for example. The working-age population reached its peak in 1992, just one year later the housing bubble began to burst.

...As buyers age, the purchase price has been rising, house area also gradually increased. After age 35, buyers look to upgrade." Liu Yuan said, overall, this demand drops after age 40.

Ten years from now, people born before 1985 will enter the 40-year-old age group, according to Liu Yuan's analysis, this portion of the market will be significantly reduced, which means that, upgraded housing will lose purchasing power.

In addition, the current population in many third-tier cities shows a net outflow trend. Data show that in the 2010 - 2012 period, national real estate prices rose an average of about 10%, but the population growth rate of 15 third-tier cities turned negative, and Bengbu, Kaifeng, Shiyan, Shaoguan, Maoming, Nantong, these six cities saw home prices fall.

"Now first-tier cities look relatively safe, but in the long run they may not be. From the data we monitor, the brain drain phenomenon to Beijing and Shanghai is more obvious." An official in charge of national home price said.

iFeng: 中国楼市明日危机：十年后一对夫妻有6套房 谁还会买房