Abstract â– China's real estate market has been prospering for 16 years, but it is also a transition from full prosperity to partial prosperity. From population promotion to capital promotion, from big rise to small increase to ups and downs, there will inevitably be stagflation in the future. And the process of general decline. Since house prices have become a monetary phenomenon,...
â– China's real estate market has been prospering for 16 years, but it is also a transition from full prosperity to partial prosperity. From population promotion to capital promotion, from big rise to small rise to rise and fall, there will inevitably be stagflation in the future. The process of general decline. Since house prices have become a monetary phenomenon, and the liquidity of money is much higher than the mobility of the population, it is difficult to control the currency. â– At present, the biggest pressure in the domestic real estate industry is that the inventory is too large. This is mainly concentrated in the second, third and fourth-tier cities. At the same time, it is necessary to avoid a sharp drop in house prices, because the price drop is basically equivalent to the financial crisis. In the case that the PPI is close to being negative for four consecutive years, the urgent thing to do is not the supply side, but the demand side, because the former is a long-term slow work, and the latter is to avoid the risk of an emergency. To stimulate demand, migrant workers should not be allowed to increase leverage, but should expand government spending for people's livelihood, raise the income and welfare level of low- and middle-income groups, and narrow the gap between the rich and the poor, that is, the government will increase leverage and let the government pay. Buying a house as a low-rent housing for low-income groups.
Since 2000, China's asset scale has grown rapidly. Real estate is the largest asset among large-scale assets, and it is also the largest asset among residents in asset allocation. Compared with the ups and downs of the stock market, the real estate market has basically been in a big bull market in the past 15 years, except for the slight decline in the overall house price level in individual years. However, in the past 2015, the growth rate of real estate development investment dropped sharply, only a percentage point increase. How will housing prices look like in the future, will there be a so-called bubble burst? This article wants to discuss this tangled problem from the perspective of population and currency.
2000-2010: More housing prices are a phenomenon of population
The main data of China's real estate industry began in 2000 and beyond. The growth rate of real estate development investment has reached two highs. One is in 2007, the growth rate reached 30%, and the other is in 2010, reaching 33%. The reason for the emergence of a phased high in 2007 was related to overheating. The year was also a high point in GDP growth, which was followed by the impact of the US subprime mortgage crisis in 2008. In 2009, China launched a two-year investment stimulus plan of 4 trillion yuan, making the growth rate of real estate development investment in 2010 a record high.
First, the peak of the working-age population appeared in 2010
Residents' demand for real estate is nothing more than the two major needs of living (or improving living) and investment. In terms of population, from the perspective of population, one is related to the age structure of the population, and the other is related to population movement. From the case of the United States and Japan, the age of the main group of people buying and buying cars is 25-44 years old.
For example, the US real estate cycle is closely related to the demographic structure. Real estate is a typical young consumer goods, 25-44 years old is the peak period of real estate consumption, and the proportion of real estate consumption will continue to decline after the age of 45. In Japan, the population was aging in the 1980s, and the number of people in the 25-34 age group was declining, from 1995 million in 1981 to 15.73 million in 1991, a drop of 21%, and finally appeared in 1991. The bursting of the real estate bubble. Therefore, from the international experience, with the increase in the proportion of middle-aged and elderly people over 45 years old, real estate consumption will encounter a historic turning point.
According to the survey results of the China Index Academy, young people aged 25-34 are the largest group buying houses, accounting for 50% of the number of buyers. The second largest group is 35-44 years old, accounting for 24.5% of the buyers. This age group of 25-44 years old accounts for about 75% of the number of people buying.
Due to the implementation of family planning, the turning point of the demographic dividend has emerged. The peak of the proportion of working-age population aged 15-64 in the total population has reached a high of 74.5% in 2010. By 2013, this proportion has dropped to 72.8%. . It is expected that by 2020 this proportion will fall below 70%. The total number of young people aged 25-44 reached its peak in 2015 and will begin to decline in the future. From the experience of the United States, Japan, South Korea and other countries, with the peak of the total population of 25-44 years old, real estate sales will also have an inflection point.
The growth rate of real estate development investment peaked in 2010, which is consistent with the peak of the labor force, and the growth rate of passenger cars (accounting for about 85% of automobile production) also peaked in 2009, and the time is very close. From the case of the United States, the main force of consumer passenger cars is younger than real estate, that is, the group of 25-34 age group buys more than the group of 35-44 years old, while the purchase of housing is the opposite. It can be seen that an important factor affecting real estate, the age structure of the population, has already signaled a decline in 2010.
Second, the peak of the growth rate of the floating population appeared in 2010
Another important factor affecting real estate is how is the change in the floating population? Since the National Bureau of Statistics has only released the data on the floating population in recent years, I can only replace the population movements from the increase in the number of migrant workers. According to the published data, the growth rate of migrant workers in 2010 reached a peak of 5.5%, corresponding to an increase of 8 million non-agricultural labor. But after only five years, by 2015, the number of migrant workers will only increase by 0.4%, close to zero growth. Moreover, the number of floating population has also decreased by more than 5.6 million. This shows that 2010 is not only the peak year of the working population, but also a peak year of population mobility.
The acceleration of population movement not only leads to the prosperity of the real estate industry, but also affects the housing prices of the regional sector, because population migration is the process of urbanization. Between 2000 and 2010, the overall direction of population migration was from west to east, which is consistent with the increase in housing prices in the east than in the central and western regions. The permanent population of the sea in 2000 was about 16.7 million, and by 2010 it reached about 23 million, an increase of 6.3 million or so, an increase of 38%. Beijing's population in 2000 was 13.8 million, reaching 19.6 million in 2010, an increase of 5.8 million, an increase of 42%. The resident population of Shenzhen in 2000 was 7 million, and it increased to 10.35 million in 2010. In the decade, it increased by 3.35 million, an increase of 48%. The resident population of these three major cities grew at the rate of 2000-2010, which was the largest in the Beijing-Tianjin-Hebei region, the Yangtze River Delta region and the Pearl River Delta region. At the same time, the price increase was also among the top three cities in the country.
From the characteristics of population mobility in 2000-2010, it is also a developed province in the eastern coastal areas, with a population of more than 74 million in Jiangsu Province, which is more than 2 million less than Shanghai in the past 10 years. In Hebei Province, which is also economically developed, the population growth is also less than one million less than Beijing. Therefore, it is not difficult to conclude that the urbanization that China has experienced in the past 10 years, or more precisely, the urbanization. This can explain why housing prices in first-tier cities are much larger than those in second- and third-tier cities.
Using the two population phenomena of population age structure and population mobility to explain the changing characteristics of housing prices should still be convincing. In fact, China's economic growth is also a demographic phenomenon, the so-called demographic dividend. For example, China’s exports have changed from high growth to negative growth, which is also related to changes in labor supply. The rise in labor costs has led to industrial shifts across the globe and has affected the ups and downs of the national economy.
Third, China's urbanization rate is difficult to reach the Western level
After 2010, China's population is not only more aging, but the rate of population movement has also slowed significantly. Among the registered population of the sea, the proportion of the elderly over 60 years old is close to 30%, but at the same time, the population inflow rate in Shanghai has also slowed down sharply. The 13th Five-Year Plan recommends that the resident population of Shanghai be controlled at 25 million, which means In 2010-2020, the net increase in Shanghai's population was less than one-third of the previous 10 years. It is reported that the number of permanent residents in Beijing increased by 190,000 in 2015, while Shanghai is estimated to be close to zero growth. One of the reasons for population control or population inflow reduction in megacities, but the overall slowdown in population mobility is not related to the population policy of megacities, but related to the aging of the population and the reduction of rural transferable labor. .
According to some statistics, in the past five years, house prices in third- and fourth-tier cities have fallen year-on-year, which is related to the aging of the population and the stagnant population. Since China began to restrict housing purchases in some big cities in 2011, a large number of real estate developers have invested in real estate in third- and fourth-tier cities, resulting in a significant increase in inventories in these cities. Another reason for developers to invest in third- and fourth-tier cities is that China's urbanization has much room for improvement. From the results of the 5th and 6th censuses, China’s previously announced urbanization rate is much lower than the census results. That is to say, the current urbanization rate may be lower than the actual level.
In addition, the increase in the rate of urbanization in China and developed countries cannot be simply analogized, because China's population is not rich, but developed countries such as the United States, Japan, and Europe are not rich. Therefore, although China's future urbanization rising space is still there, it is smaller than that of developed countries, and the speed will slow down. Even after the two successful manufacturing countries like Japan and Germany, the level of urbanization rate has fallen below the annual average of 0.3% since it became a developed economy in the 1970s.
2011 to the present: the rise and fall of housing prices is more of a monetary phenomenon
If the national real estate market before 2010 has gone through a big bull market, then it can only be said to be a structural bull market after 2011. Because with the decline in the growth rate of the floating population, housing prices began to rise due to the impact of funds.
After 2011, house prices are more reflected in the phenomenon of money. China's economic growth since 2009, the size of the broad money M2 has grown abnormally, surpassing the US and Japan to become the world's largest. At the same time, the proportion of M2/GDP has risen sharply, from 1.58 times in 2008 to 1.9 times, and now it has more than doubled. That is to say, the Chinese economy is increasingly driven by investment (currency and matching), and the level of leverage of the entire economy has also risen sharply. The impact of housing prices on currency can be explained in three aspects: first, the level of income of residents; second, the degree of tightness of monetary policy; and third, the concentration and flow of social funds. These three aspects are interrelated and mutually influential.
It is still convincing to explain the difference in housing prices from the perspective of the income level of residents. The high prices of Shanghai, Shenzhen and Beijing are because the per capita disposable income ranks in the top three in the country; Zhejiang’s per capita disposable income is higher than that of Jiangsu and Guangdong, although the total GDP is much lower than the latter, which explains The overall house price level in Zhejiang is higher than that in Jiangsu and Guangdong.
A typical case is Wenzhou. Before 2011, Wenzhou's house price level was comparable to that of Hangzhou at that time, and Hangzhou's house price level was second only to Beijing-Shenzhen. In the 10 years from 2000 to 2010, Wenzhou's resident population increased by 20%, much lower than the population growth rate of first-tier cities. Moreover, Wenzhou's per capita GDP is also lower than the average level of Zhejiang Province, so why is Wenzhou's housing price increase so large? I think that per capita GNP is an important explanatory variable, because Wenzhou businessmen are not only spread across the country, but also have a certain scale in Europe, which makes Wenzhou people's actual income level much higher than per capita GDP. Therefore, the total scale of private funds in Wenzhou is also very impressive, and Wenzhou real estate speculators have once become famous throughout the country.
However, after 2011, Wenzhou’s housing prices have fallen sharply. The reason is that the enterprises run by Wenzhou people have a problem of excessive debt ratio and excessive debt cost in the context of weak macroeconomics. They can only be solved by selling houses. Liquidity issues. The local government has also made up for the lack of financial funds through a large supply of land, which further reversed the supply and demand relationship in the Wenzhou real estate market. Another case is Erdos, whose house prices have also fallen since the peak in 2011. A city that has only developed by coal price increases is bound to decline due to the fall in coal prices.
However, the rise and fall of house prices is also highly correlated with the central bank's monetary policy. For example, in 2011, not only the housing prices in many regions fell, but also the price of steel, coal, nonferrous metals and other commodities also showed a downward turning point. This should be related to the tightening monetary policy of the central bank – three interest rate hikes and six increase in deposit reserve ratios in 2011. In addition, the central bank also raised the down payment ratio. It can be seen that the downturn in house prices and the tightening of monetary policy have obvious causal relationships.
Looking back at the changes in the official one-year deposit rate and the statutory reserve ratio during the five years from 2010 to 2015, it can be seen that monetary policy tends to be loose overall. For example, the one-year interest rate in 2010 was 2.75%, and the RRR was 18.5%. By the end of 2015, the interest rate fell to 1.5% and the RRR dropped to 17%. Among them, there were five interest rate cuts and RRR cuts in 2015, so house prices performed much better than in 2014. According to statistics from research institutions, during the period from the end of 2010 to November 2015, the price of first-tier cities rose by 45.53%, a significant increase. In contrast, second-tier cities saw an increase of only 10.73%. In the same period, the year-on-year increase in house prices in third- and fourth-tier cities continued to decline. Among the first-tier cities, the price of new commercial housing in Shenzhen rose by 77.2%, ranking the highest in the country.
However, in the 10 years from 2000 to 2010, it was also the biggest increase in house prices in 10 years, and the national average house price rose about 4 times. The deposit rate increased from 2.25% to 2.75%, while the RRR climbed from 8% to 18.5%. However, from the general direction of monetary policy, these 10 years are still tightening. However, the continuous tightening of monetary policy has not prevented the soaring house prices. Therefore, the trend of house prices in 2000-2011 is mainly reflected in the population phenomenon rather than the monetary phenomenon.
Regarding the impact of the concentration and flow of social funds on housing prices, Beijing, Shanghai and Shenzhen can be cited as examples. From the perspective of per capita disposable income, the average income of residents in these three cities is only a little more than double that of China's poorest provinces, but why is the average house price level seven or eight times higher? Among them are the factors of social capital and wealth gathering in first-tier cities. Because the advantages of public services such as education, medical care, and culture gathered in big cities, as well as investment information and wealth appreciation opportunities, are difficult to obtain elsewhere, they not only attract domestic capital inflows, but also attract international capital.
Looking at the trend of housing prices in various parts of 2015, it is found that after July, the prices of most cities have fallen back. Is this related to the sharp decline in the stock market? However, housing prices in Beijing and Shanghai have risen steadily, and Shenzhen continues to climb. How is this explained? Because these three major cities are China's financial centers, the A-share transaction volume in 2015 exceeded one-third of the global stock trading volume, which brought huge income to the financial industry, such as asset management, wealth management, self-operated business, Brokerage business, etc. For example, in the first half of 2015, the financial industry contributed more than 30% of GDP, which brought considerable income growth to the financial services industry-related employees in the three major cities.
How to avoid falling prices in the future
Everyone is familiar with Friedman’s famous saying that “inflation is a monetary phenomenonâ€. In fact, any asset price that deviates from the fundamentals can become a monetary phenomenon. In the first half of 2015, A-shares showed a round of skyrocketing without performance support. It was a monetary phenomenon, and the collapse of some global commodity prices was a manifestation of economic disintegration. Capital flows to the financial sector and is also a currency. phenomenon.
China's real estate market has been prospering for 16 years, but it is also a transition from full prosperity to partial prosperity. From population promotion to capital promotion, from big rise to small rise to rise and fall, there will inevitably be stagflation and generalization in the future. The process of falling. There is no housing market in the world that only rises and falls, and the key is when it begins to fall. In the past many years, all the predictions of house price declines are misjudged. The so-called vacancy rate, house price-to-income ratio or house price-to-rent ratio, per capita housing area, total market value of house prices, and GDP ratio cannot be judged when the house price is seen. The effective basis of the top. But as time goes by, the probability of a general decline in house prices is also growing. Since house prices have become a monetary phenomenon, and the liquidity of money is much higher than the mobility of the population, it is difficult to control the currency.
The factors that constitute a positive factor for housing prices are firstly that the proportion of mortgage loans of residents to the total market value of housing is only about 10%, which is one quarter of the current US indicator, that is, residents do not have the pressure to sell houses. Second, the local government has borrowed new loans over the years and the pressure on debt repayment has decreased. The third is that first-tier cities are still in a state of restricted purchase.
The unfavorable factor for housing prices is the liquidity pressure of some developers, because real estate development loans account for more than 10% of the bank loan balance, and the problem of the capital chain will endanger the banks. Another unfavorable factor is the consistent behavior of holding property groups, just like the stock market crash in June last year, which is prone to stampede. In the context of an aging population, investors are more likely to hold financial assets. Moreover, the proportion of China's investment purchases is too large. In the context of low housing rent ratios, everyone is pursuing spreads, which is similar to the investment behavior of the stock market. The difference is only the length of the investment cycle.
At present, the biggest pressure in the domestic real estate industry is that the inventory is too large, mainly concentrated in the second, third and fourth tier cities. Therefore, the negative growth of real estate investment in the future is a high probability. The key is how to go to the stock, and at the same time avoid the price drop, because The sharp fall in house prices is basically equivalent to the financial crisis. If it is simply to encourage migrant workers to borrow money to buy a house in order to go to stock, it is actually a problem to cover up another problem.
According to the National Bureau of Statistics, China's migrant workers account for only 1% of the total number of migrant workers in urban areas. This shows that today's housing prices are not acceptable to low- and middle-income groups. Why the housing prices in the third- and fourth-tier cities have fallen, and the factors of supply and demand are not mentioned. Whether employment opportunities and public services can satisfy people's needs is the key. If there is no employment opportunity, then what is the reason for borrowing money to buy a house? Or lack of public services, the living environment is not good, everyone still does not want to buy a house.
Therefore, to more adapt to the market development trend, the current industrial concentration of China's first-tier cities is not enough. The process of industrial survival and inferiority in third- and fourth-tier cities is far from over. If we adopt government subsidies and bank loans, we encourage farmers. Workers can buy a house in a place that may become a ghost town in the future. It is better to use this money for the improvement of the social welfare level and for the equalization of public services. Otherwise, letting the market play a decisive role in resource allocation will become an empty talk.
In the case that the PPI is close to being negative for four consecutive years, the urgent thing to do is not the supply side, but the demand side, because the former is a long-term slow work, and the latter is to avoid the risk of an emergency. To stimulate demand, migrant workers should not be allowed to increase leverage, but should expand government spending for people's livelihood, raise the income and welfare level of low- and middle-income groups, and narrow the gap between the rich and the poor, that is, the government will increase leverage and let the government pay. Buying a house as a low-rent housing for low-income groups. If possible, it is to find ways to increase the leverage of the rich and increase their investment in the country rather than let them invest overseas.
(Author: Lee Thunder, the Department of Haitong Securities and Haitong Futures, chief economist)
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