For conservatism, data, and simplicity sake, I am going to limit the analysis to urban housing units. In other words, let us assume that all mortgage and medium to long term household debt is owed only by urban households. This does not change the outcome in anyway and if anything make it much more conservative than it would be otherwise.More at the link.
The primary thing we want to do is adjust for the number of households in urban China. Without going into all the underlying calculations, which come from all official data, there are approximately 272 million urban households in China and according to official data, only a very small number of households do not own their housing. Again, this is all relying and strictly using official data.
If we then estimate urban residential real estate wealth using the 100 City Index price per square meter as our high value and the Third Tier City Price per square meter as our low value, we have both a high and low value for our estimate of urban residential real estate wealth. This gives us an estimated upper bound of 330 trillion RMB and a lower range of 189 trillion RMB.
Here is where it gets interesting. If we translate this into a broad loan to value number, this means that urban China has an estimate loan to value ratio on its real estate holdings of 5-9%. In other words, almost all of urban Chinese real estate is owned almost entirely free and clear according to official statistics.
If we apply this analysis backwards, the numbers are even more nonsensical. In 2011, the urban loan to value ratio ranged from 3.3-4.5%. If we use absolute numbers, the appear even more absurd. When the average housing unit in 2011 cost 665,000 RMB using the third tier city price and 910,067 using the the 100 City National Index, mortgage debt totaled only 29,675 RMB per urban housing unit.
My concern moving forward is the high loan to sales ratio being reported in the press, which indicates the marginal buyer needs a large and rising LTV to maintain price appreciation.