NANJING, China — “We’re a small city, just 8.2 million.”
I’m driving around Nanjing, a so-called second-tier Chinese city that’s actually as populous as New York City, with administrators from Nanjing Tech University, listening to them talk about the ups and downs of living here.
Nanjing is an ancient capital city built along the banks of the Yangtze River, with the main part of town on the south side—dominated by the 1,480 foot, 89-story Zifeng Tower—now connected to the north side by a new 2.6-mile tunnel. There are scores of Starbucks across the city and dozens of the usual luxury-good purveyors (Prada, LVMH, Burberry etc.) The economy is highly diversified, and at 9.2%, its GDP is growing well above China’s overall rate of 6.7%.
Like most cities in China there are a few constants, namely traffic and construction. (In some cities in China, like Shanghai for instance, only cars with license plates that indicate the drivers live inside the city’s confines are allowed to drive during rush hour.) Hundreds of cranes dot the Nanjing cityscape, (My favorite crane company is one named ‘Zoomlion’), and there are thousands of new buildings, especially residential construction. So you would think that the amount of housing stock would be adequate, right?
It isn’t, but not for reasons you might expect. The reason? Chinese consumers love to invest in real estate. Actually, speculate is more like it.
Just to give you an idea: Typical apartments in Nanjing that were going for 17,000 RMB per square meter (or about $232 per square foot) 12 months ago, now sell for 30,000 RMB per square meter (about $409 dollars per square foot). That’s an increase of 76% in one year. “This is crazy, drives us all crazy,” said one of the university administrators. That’s about the same price per square foot as San Diego, where the average annual salary is $67,000, while the average annual salary in Nanjing is more like $11,000. How is that possible? Because in China, families tend to pour all their money and savings into real estate.
So, like anywhere in the world, the government has stepped in to try to tamp down this overheated market.
The new regs mandate that if a couple wants to buy a second apartment, it has to put down 80% cash instead of the usual 10%. But the citizenry—as it is wont to do—has responded. According local media stories, couples are getting bogus divorces to buy second apartments—filing what are essentially phony divorce papers and still living as husband and wife to get around the 80% down payment rule.
Human nature—and the profit motive—that’s some powerful stuff.
Andy Serwer is editor-in-chief of Yahoo Finance.