● Abundant credit funds push up house prices.
● Some local governments let prices rise.
● Inflation expectations lead to the phenomenon of buying houses to preserve value.
● Real estate developers create markets to promote the upward trend of housing prices.
On the occasion of spring and summer this year, the sudden rise of domestic housing prices has aroused widespread concern in society. In fact, the real estate industry, as the biggest beneficiary of the huge amount of credit, has made great contributions to investment while rapidly completing the V-shaped reversal. It can be said that the real estate industry is the hero of the good economic performance in the second quarter.
The booming production and sales of the real estate market has promoted the rise of housing prices. When the macro-economy has not yet fully recovered, the real estate industry has taken the lead in entering prosperity. With the acceleration of urbanization, the contradiction between urban land supply and demand is becoming more and more obvious, especially in the central city, which makes it more difficult to reconcile this contradiction. Therefore, in the long run, the rise of real estate prices is inevitable and reasonable.
However, in the current macro situation, there are special reasons for the rise in house prices:
1. Credit funds have pushed up house prices. According to the data of the central bank, in the first half of this year, China’s new loans amounted to 7.37 trillion yuan, 1.47 times more than that of the whole year of 2008. The amount of credit funds released a lot of liquidity, which contributed to the rise of asset prices, and real estate prices were no exception. On the other hand, because the total amount of loans is mainly in the medium and long term, it is possible for funds to enter the real estate market. According to the calculation of relevant institutions, about 20% of credit funds flowed into asset markets such as real estate and stock market in the first half of the year, which promoted the rise of the volume and price of real estate.
2. Some local governments allow prices to rise, which raises house prices to some extent. Due to the slowdown in economic growth, the government’s fiscal revenue and expenditure situation is not ideal. According to the data released by the Ministry of Finance, the national fiscal revenue in the first half of this year decreased by 2.4% year-on-year; Fiscal expenditure increased by 26.3% year-on-year. The tight income has forced some local governments to increase revenue and reduce expenditure. The increase in land transfer fees and real estate taxes, which account for a large proportion of government revenue, will ensure the improvement of government revenue and expenditure. Therefore, the rise in housing prices is a "win-win" thing for some local governments and real estate developers, and they are naturally willing to do it.
3. Investors’ strong inflation expectations make real estate investment a hedge option. Looking around the world, the rescue actions of various countries have made ample liquidity a common phenomenon. In addition, commodity prices have quietly rebounded, and crude oil prices have inadvertently broken through the $70 mark, and imported inflation seems to be just around the corner. At the same time, with the continuous rise of domestic credit funds and M2, the release of liquidity has led to the rise of domestic asset prices, and the expectation of future inflation is relatively strong. As an ideal choice to preserve value, real estate investment has become the object of investors’ pursuit, and it is natural for house prices to rise.
4. the market-making activities of real estate developers have contributed to the rise of house prices. In some areas, real estate developers sell their own products to create illusions, and the recent phenomenon of property hoarding, a real estate developer in Beijing, has alarmed the government. The demonstration effect and herd effect formed by market-making have contributed to the rise of housing prices.
The cold winter of global real estate industry caused by subprime mortgage crisis has not passed, and when the optimization and integration of industry structure has not been completed, the domestic real estate industry has turned around and directly entered the midsummer. The "hard take-off" of the real estate industry has also led to many unreasonable phenomena, which are embodied in the abnormal development of market structure and industry structure. The soaring housing prices in 2007 eventually led to huge inflationary pressure, and this round of housing price increase gradually highlighted the hidden worries of inflation.
As one of the pillar industries, the rise and fall of real estate is related to the development of many upstream and downstream industries. History has also proved that the prosperity of the real estate industry made China’s economy maintain double-digit growth for five consecutive years from 2003 to 2007. However, in the last round of inflation, the soaring real estate prices have become the driving force behind inflation. The capital-driven warming of the real estate market will involve banks. The subprime mortgage crisis caused by the collapse of the real estate market caused by excessive credit is still in sight, and we must never repeat the mistakes of the United States. Many years ago, at the beginning of the banking reform in China, a large number of non-performing loans were carried, and now it is hard to get out of the danger. We should prevent this situation from coming back. We must bear in mind the profound lessons of history and face up to this potential risk. Based on the importance of the real estate industry to the national economy, house prices cannot rise or fall sharply. The healthy development of the national economy requires the real estate industry to return to a benign development track. We have every reason to believe that after the real estate industry has undergone full adjustment, China’s economy will surely usher in a better tomorrow.
(The author is the director and professor of the Institute of Securities and Futures, Beijing Technology and Business University)
Editor: Xun Zhiguo