As I was writing up this article, I visited Wenzhou for the first time. Wenzhou people are well known to be really good at doing businesses. Wenzhou businessmen are called the Wenzhou gang due to their ability to band together and form a formidable power in the market. This collective ability brings them wealth but also side effects.
Due to their shrewdness, they are really good at real estate transactions. As a result, the Wenzhou gang is notorious for speculating in the real estate market nationwide. This practice most certainly starts from their own home city, i.e. Wenzhou itself. Its property value skyrocketed to the level of Shanghai before the 2008 financial crisis. Due to tighter government restriction on the property market in the past few years, the Chinese real estate market did take a dip nation wide until recently. Wenzhou is especially hard hit. A lot of cities have regained their upward trends despite government curbs, but not Wenzhou.
During this visit, I saw a lot of housing development projects in the city. Unfinished high rises can be seen not only in the city center but also in the suburbs amid farm houses that have not been condemned by the government and torn down. The supply seemed to be enormous as I eyeballed it.
How much supply is over supply? It is a very hard to answer question. In the housing market, houses not only serve as tools to satisfy the basic needs of living but they also function as an investment instrument. As a result, the demand of houses include both living demand and investment demand. So each household might need only one house to live in, but they could invest in several houses. Each house will serve the function of a big gold bullion. So the prices will continue to go up despite the increasing numbers of unoccupied houses. But the effects of storing gold bullions certainly are no comparison with those of hoarding houses.
I am not saying there should not be a market for housing, but the government should not regulate the transaction of houses like they do that of gold. Building houses represents a major consumption of natural resources. They should be able to provide what they are meant to do, that is providing shelters. Therefore, government’s measures in stamping the tide of hoarding houses cannot be over-emphasized. We need a housing market, not a housing bubble, where houses are perceived as houses not as chips on the table.