Sheng Songcheng: Real estate regulation is to make the development of the real estate market relatively controllable

category:Finance
 Sheng Songcheng: Real estate regulation is to make the development of the real estate market relatively controllable


The Politburo meeting reiterated the position of housing is not speculative. As early as the end of last year, at the National Conference on housing construction in urban and rural areas, the responsible person of the Ministry of Housing and Construction said that the real estate market in 2019 will aim at stabilizing land prices, stabilizing house prices and stabilizing expectations to promote the steady and healthy development of the real estate market. Therefore, stability is an important criterion for the healthy development of the real estate market. That is to say, the stability of the real estate market should be judged by the factors of land price, house price, expectation and influence.

The author wrote in April this year, and proposed to be vigilant against a new round of house price rise. At that time, from the trend of housing price changes, the real estate market showed signs of recovery. We believe that in order to maintain the healthy development of Chinas real estate market, we must adhere to the unshakable regulation and control of real estate, consolidate the hard-won results of regulation and control, and never give up halfway and repeat the same mistakes. With the meeting of the Political Bureau of the Central Committee held on April 19, emphasizing that insisting on the positioning of houses for living, not for speculation, the real estate market has obviously cooled down. In June, the prices of newly built commercial housing in the first, second and third tier cities increased by 4.4%, 11.4% and 10.9% respectively over the same period last year. The growth rates have fallen by 0.3%, 0.9 and 0.4 percentage points from the April highs, respectively.

The stable economic development and the healthy operation of the real estate market are unified and consistent. For a period of time, the profits of real estate industry in China are higher than those of other real economy. Adhering to regulation and control will help make the profits of real estate industry close to those of other industries step by step. Capital will flow more to other real economy, and economic development will also promote the growth of residentsincome. Therefore, while controlling the real estate industry, through revitalizing the real economy, constantly improving the income level of residents, and constantly reducing the ratio of house price to income, this will make our country avoid the sharp adjustment of house price in the United States, Japan and other places, and will also create a historical miracle of stable development of real estate.

Reasonable Growth of Real Estate Investment is the Basic Conditions for Healthy Development of Real Estate Market

The meeting of the Political Bureau put forward that the current economic development of our country is facing new risks and challenges. GDP grew at a cumulative rate of 6.3% in the first half of 2019, 6.4% in the first quarter and 6.2% in the second quarter. In terms of consumption, investment and net exports in the first half of the year, the three factors contributed 3.8, 1.2 and 1.3 percentage points to GDP respectively.

Manufacturing investment, infrastructure investment and real estate investment are the three major components of fixed assets investment, accounting for more than 80% of the total. From the first half of 2009, investment growth in manufacturing industry was 3% (2.7% in January-May), infrastructure investment was 2.95% (2.6% in January-May), marginally improved, and real estate investment was 10.9% (11.2% in January-May). Although manufacturing investment and infrastructure investment have rebounded, they may face downward hedging of real estate investment in the future.

Real estate investment mainly includes construction and security projects and land acquisition. In theory, the decline of real estate investment will lead to the decline of new construction, construction and land acquisition. The growth rate of new residential construction area in June was 0.9 percentage points lower than that in May, and the growth rates of residential construction area and land purchase fee were 0.1 and 3 percentage points lower respectively. If investment in the real estate market continues to decline, it will result in a reduction in land acquisition, new construction area and construction area, and the final result will be a decline in the supply of the real estate market.

The relationship between investment in real estate development and the area of commercial housing for sale. Wu Qi draws.

In June 2019, the inventory area of commercial housing and residential buildings in China was 502 million square meters and 232 million square meters, which were lower than that at the beginning of the relaxation of regulation in the same period in 2014 (the inventory area of commercial housing and residential buildings were 544 million square meters and 359 million square meters respectively). Overall, the regulatory policy has not been strengthened for a long time, which indicates that the regulatory policy has basically achieved its goal, the current market speculative demand has been basically curbed, and just need and improvement has become the main demand. In this case, the inventory of commodity housing is still declining, or it may indicate that the current reasonable housing demand of Chinese residents may be greater than the actual supply. If the current supply and demand pattern does not change, the inventory of commercial housing may continue to decline. Compared with June 2014, the period of decomposition of commercial residential buildings in China was 5.07 months (calculated by the monthly moving average sales of 6 months, the same below), which had dropped to 2.11 months in June 2019. In Chinas Regional Financial Operation Report released in July this year, the central bank pointed out that the growth rate of retail sales of social consumer goods dropped by 0.3 percentage points for every percentage point of increase in household leverage caused by rising house prices. Reasonable investment increase in real estate development is an effective measure to reverse the short-term supply and demand pattern and stabilize expectations. The stability of the short-term real estate market is the basis of long-term stability.

Therefore, it can be seen that maintaining the moderate growth of investment in real estate development is highly consistent with stabilizing land prices, Stabilizing House prices, and stabilizing expectations. Its connotation embodies the importance of combining supply and demand regulation ideas and expected regulation for stabilizing house prices.

In the short run, many policies recently issued in China involve the real estate industry, further expanding the overall investment demand for the real estate industry; in the long run, the housing demand in China mainly includes the residential demand of new urban population and the demand of depreciation and demolition of urban stock housing in the process of urbanization. According to the National Population Development Plan issued by the State Council (2016-2030), the expected development target of urbanization rate in 2030 is 70% (according to the average annual growth rate of 1.31 percentage points in the past 20 years, the expected level of 70% can be basically achieved in 2030). In the next 12 years, the urban population in China will increase by 146 million people. u3002 According to the current per capita housing construction area of 39 square meters for urban residents (according to the data of the National Bureau of Statistics in 2018), the housing demand of the new urban population will be 5.677 billion square meters in the future, and the scale of depreciation and demolition of urban housing will reach 5.558 billion square meters in the next 12 years. Over the next 12 years, the total demand for urban housing will be about 11.229 billion square meters (18.640 billion square meters at 30-year depreciation). In the past five years, the turnover area of urban housing is 6.479 billion square meters, and the demand for urban housing in the future is 1.73 times that of the past five years (2.88 times as long as 30 years of depreciation period).

Apart from the demand for housing investment, there are a large number of other investment needs for real estate development in China. The continuous promotion of population urbanization in China will inevitably lead to the increase of urban commercial demand. At the same time, the upgrading of residentsliving standards will also lead to a large number of commercial needs, which need sustained investment in commercial real estate development to meet. With the further development of aging and upgrading of residentsconsumption, industrial real estate represented by pension real estate and tourism real estate also needs a lot of capital investment. To ensure the reasonable growth rate of real estate development investment, the real estate market and the overall economy can develop healthily for a long time, which is also an important part of the long-term regulation mechanism of Chinas real estate market.

Five Suggestions for Maintaining Healthy Development of Real Estate Market

Maintaining reasonable growth in real estate investment and development does not mean stimulating real estate in the short term, but focuses on the need to promote long-term and stable economic development. To this end, we propose the following five suggestions:

In October 2018, we put forward the importance of housing price expectation regulation. Expectation management is an important part of Stabilizing House price, land price and expectation. The expected stability can stabilize the fluctuation of the market, stabilize the current land price, reduce the profit margin of speculation, curb market speculation, reduce the investment attributes of housing, and achieve the policy goal of housing non-speculation. In the absence of a large decline in overall demand, stable expectations can not be separated from the supply-side forces, and maintaining a reasonable and stable growth of real estate development investment is one of the important means of supply-side regulation and control. At the same time, not taking the real estate industry as a short-term economic stimulation means means that the real estate industry in the long-term economic development will inevitably achieve coordination with the overall economy and prevent the ups and downs of the development model, which will also stabilize the current real estate market expectations.

2. Stick to the regulation and control of the real estate market.

We should resolutely implement the policy keynote of no speculation in housing. In fact, housing prices are basically stable, and even a small decline will not have a greater impact on economic growth. Maintaining the reasonable growth of real estate development investment can increase the supply to meet the needs of just needs and improve the needs of groups, and realize the virtuous circle of real estate investment and house price stability. At the same time, we will further crack down on speculative demand for real estate by suppressing housing prices, and achieve the three stable objectives of real estate regulation.

3. Promote the healthy development of the real estate market by combining supply and demand.

4. Implementing the regulation policy and reasonably solving the normal financing of Housing enterprises at the same time.

In June 2019, the growth rate of the source of development funds for housing enterprises was 7.2%, which was 0.4 percentage points lower than that in May. In the second quarter, the new real estate loans of Renminbi, a major financial institution, fell by 9.32% compared with the same period last year. It is absolutely necessary to strictly control the illegal financing of housing enterprises, and at the same time meet the normal and reasonable financing needs of Housing enterprises to ensure the appropriate level of investment. We should actively respond to the policy of one city, one city, one city for each city, and support the reasonable and necessary financing needs for real estate projects in large and medium-sized cities with a good industrial foundation while population is still flowing in. For Shrinking Cities with a sustained population outflow and a poor industrial base, we should strictly control capital inflow and even increase regulation and control. Efforts should be made to avoid corresponding risks. Active support should also be given to relevant real estate projects in key areas supported by the state policy. At the same time, in strict accordance with the requirements of the Ministry of Housing and Construction, cities with digestion cycles of more than 36 months should stop land supply; in 36-18 months, land supply should be reduced; in 12-6 months, land supply should be increased; and in less than 6 months, land supply should not only increase significantly. In addition, the rhythm of land supply should be accelerated. The stability of land price and house price is the basis of expected stability. In this way, the real estate industry will not become a tool to stimulate the economy in the short term, and then realize the healthy development of the real estate industry.

5. Actively build and improve the long-term mechanism of the real estate market. Long-term mechanism is an important condition for the long-term and healthy development of Chinas real estate industry, which has entered the stage of implementation and pilot. The establishment of long-term mechanism will help to change the dynamic inconsistency of policy implementation, effectively curb the short-term behavior of the real estate market, accurately regulate land prices and house prices, create conditions for the implementation of one city, one city, the main responsibility of the city government, and promote the healthy and coordinated development of the real estate market and the overall economy. (Author Sheng Songcheng is a counselor of Shanghai Municipal Peoples Government and a professor of economics and finance of China-Europe International Business School; Song Hongwei and Wang Heng are fellows of Tongze Real Estate Consulting Co., Ltd. This article only reflects the authors point of view and does not represent the opinions of the organizations he serves.) Source of this article: First Financial Responsibility Editor: Li Zhaoyuan_B7890

5. Actively build and improve the long-term mechanism of the real estate market.

Long-term mechanism is an important condition for the long-term and healthy development of Chinas real estate industry, which has entered the stage of implementation and pilot. The establishment of long-term mechanism will help to change the dynamic inconsistency of policy implementation, effectively curb the short-term behavior of the real estate market, accurately regulate land prices and house prices, create conditions for the implementation of one city, one city, the main responsibility of the city government, and promote the healthy and coordinated development of the real estate market and the overall economy.

(Author Sheng Songcheng is a counselor of Shanghai Municipal Peoples Government and a professor of economics and finance of China-Europe International Business School; Song Hongwei and Wang Heng are fellows of Tongze Real Estate Consulting Co., Ltd. This article only reflects the authors views, not the opinions of the organization.