Dearth of good schooling lifts China property prices

How do you get into a good public school in China? Start with $1m, spend years preparing and get lucky.

A few months ago, Wang Xuetao bought an apartment so run down its concrete walls were crumbling. If all goes right, Wang’s bet will ensure her offspring enrol in one of Beijing’s most sought-after public schools, a path to staying in the middle class. It means seven years living in a 71m² apartment built in the 1960s around the time of Mao Zedong’s great famine.

With that lined up, her next step is to get pregnant.

“The location of this apartment can help my child secure a good elementary school,” said Wang, who spent about $800,000 on the apartment. “The planning takes years because I’m not someone who can easily come up with that kind of money.”

Wang is part of a trend sending home prices soaring in pockets across China and alarming the officials, now weighing how to intervene. While US families have spent the pandemic fleeing cities and spreading out in suburban houses, their Chinese counterparts are racing to bid up densely packed flats near good public schools.

In the US, property near good public schools commands higher prices, but parents can chose to rent to secure a slot. In China, many districts now require people to own the homes years in advance.

China’s scale means the frenzy of potential bidders is vast. About 18-million students enrol in the public primary school system every year, and only about a fifth of them make it into university.

To ensure their children can have access to better schools — often concentrated in big cities such as Beijing and Shanghai — people like Wang have sent prices in the metropolises soaring. Next to Zhongguancun No 3 Primary School, one of the city’s top five, Fengniao Residential Compound saw prices jump 31% from a year earlier, real estate platform Anjuke data shows.

Both cities rank among the most expensive of 80 global mega-cities, according to real estate services company E-House (China) Enterprise Holdings.

The situation is especially dire in Shanghai. Prices for housing in the city’s popular school districts spiked by 20% on average in the year through March, according to local property data provider Urban Surveyors.

The asking price of a two-bedroom apartment in the city can easily reach $3.6m, almost double the median value of the UK’s least affordable property markets in Kensington and Chelsea, according to local agents.

School-district housing “has become a hard currency”, said Chen Sheng, president of the China Real Estate Data Academy. “There’s both real demand and it makes sense as an investment.”

Policy tightening

Wang’s desperation is so widely shared among China’s growing middle class that the government is pushing out a vast array of policies to rein in prices. Measures range from requirements that people hold a local residency permit to paying personal income tax for a minimum of five years to qualify as a buyer. Now, authorities are warning parents that proximity will not guarantee a spot for their children.

Even President Xi Jinping has weighed in, noting during China’s annual legislative congress in March that property prices near good schools are out of whack and vowing to tackle inequality in education.

“This goes far beyond property curbs. It’s also about education reform,” said Chen Jie, a professor specialising in property research at Shanghai Jiao Tong University. “It’s an experiment to equalise opportunities for kids from different social economic backgrounds.”

The new policies are creating an additional layer of trouble for parents such as Molly Zhu. She swapped her large Shanghai apartment for a smaller, million-dollar fixer-upper for her three-year-old son. Yet two months later, the new unit’s valuation was hit due to new rules suggesting that property ownership would not guarantee enrolment in schools.

“This is the first time where my life is more dramatic than a TV show,” said Zhu, who quit her job as a civil servant and became an import and export trader to pay back her mortgages. “It seems like I live in a world with never-ending policy changes.”

Delicate balance

Her plight shows the delicate balance the government needs to maintain. Authorities are trying to moderate property prices without triggering a collapse that could lead to a public backlash. A lack of investment options means Chinese families have about 78% of their wealth tied up in property, more than double that of the US, according to a 2019 study by Chengdu’s Southwestern University of Finance and Economics.

For now Wang is sticking to her plans and will use her experience as an interior designer to transform her decades-old residence.

“For weeks we kept swiping property listing apps non-stop, joking we almost went blind, and suddenly this one turned up,” Wang said. “We really picked a hidden gem.”

Bloomberg News. More stories like this are available on bloomberg.com