BEIJING — Sitting on the floor of his apartment surrounded by the toys of his 1-year-old son, Guo Hui tallied the homes he and his wife had acquired over the years.
There was this place, in a compound a half-hour from downtown Beijing. There was a second apartment to the north, a third place near the site of the 2008 Olympics and a fourth home close to the Forbidden City that was given to him by his parents.
Guo gestured to the wall behind his couch. His neighbor? He owns six apartments in this compound alone. Guo’s friends, too, all own at least two homes each.
“There is definitely a bubble,” said Guo, whose homes have tripled in value in roughly a decade.
As home prices have skyrocketed, many Chinese households have gone all in on real estate by pouring years of savings into buying as many homes as they can.
But as the country’s economy slows to its worst pace in years, China’s dependence on real estate for growth — it’s a bigger driver than even exports now — has put the government in a tough position.
Allow prices to continue rising and help the economy in the near-term, but the real estate bubble gets worse. Cool things off and the entire economy slackens too much.
The nightmare scenario, though, is a bubble that bursts. A major drop in prices would ripple through the Chinese economy and potentially the rest of the world. Real estate investment constituted 13 percent of the country’s gross domestic product last year. The sector feeds steel, concrete and dozens of other industries.
A downturn would also be devastating to the wealth of Chinese households.
Urban housing stock made up 41 percent of Chinese household wealth in 2011, compared with 26 percent in the United States, according to Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics.
Lower home values could make Chinese consumers rein in their spending, making it tougher for U.S. and foreign firms to sell their products here.
The Chinese government has acknowledged that real estate prices have gotten too high, adding some rules in the past few years to limit how many homes people can buy and requiring people to put more money down. This helped bring prices down starting last year, though they edged back up this summer.
These policies, though, have had a limited effect. Chinese home buyers have been accumulating houses for years, mainly because they have few options for safely stashing their savings. The stock market has lost money in recent years. People are wary of putting money into savings accounts, because low interest rates are not even keeping up with inflation.
The obsession with real estate is also embedded in the culture. People are expected to own homes before they get married, and there is a deep faith that real estate is a fool-proof investment.
Since private homeownership has existed here only since the 1990s, no one has ever seen firsthand what happens when housing prices start dropping.
“Just like in the U.S., that’s what the speculators thought in Vegas and Florida, that there’s only one way to go but up,” Lardy said. “Expectations could change very dramatically.”
Unlike U.S. home buyers who took advantage of zero-down-payment loans in the mid-2000s, Chinese home buyers usually put down at least 20 percent or 30 percent, if they aren’t buying their homes outright with cash. This means it would take a far bigger drop in real estate prices to cause people to default on their loans and therefore destabilize the banking sector.
Still, the amount of household debt as a percentage of disposable income has risen sharply in recent years, from 31.3 percent in 2008 to 53.6 percent last year, according to Lardy. He added that the current figure is high compared with countries with comparable per capita GDP.
Those who play down concerns about a bubble say there is real demand for housing in China’s cities that justifies the high prices.
But the astronomical cost — homes in cities cost on average $1,378 per square meter — has left many unable to afford a house, whereas others accumulate more than they need.
“It’s like the way other people collect watches,” said Anne Stevenson-Yang, co-founder of the research firm J Capital.
People have bought so many homes for investment that they often leave them sitting empty.
On a recent evening driving around the outer edges of Beijing, it was easy to spot residential high-rise buildings along the highway that did not have a single window with a light on.
In an area called Daxing, one hour south of the city’s center, two security guards stood in front of a gate leading into a massive compound of 545 Italian-style, million-dollar mansions, almost all of them empty.