A further recovery of the real estate market is on the cards.
The overall real estate industry is accelerating its diversification at the moment, and most of the changes are positive.
First of all, the market structure is becoming more reasonable. The property market has confronted a series of challenges in the past few years, including trade tensions between China and the United States, and the impact of COVID-19, which phased out a few small-sized property developers with ordinary financial management capability.
The remaining industry players are larger in scale and stronger in risk control, and they can help increase the entire market’s ability in dealing with risks.
Second, the variation of the market could effectively lower costs, as well as help control home prices from rising.
Third, the market adjustment will facilitate the execution of property measurements, and ensure the healthy development of the real estate market.
The consolidation of the real estate sector will also reinforce the effect of macro control policies, thus putting the property industry in a better position in confronting future risks and uncertainties.
Talking of market risks, under the central government’s principle of “housing is for living in, not for speculation”, the real estate market has been quite stable in general over the past few years.
To be sure, there are some structural problems. For instance, certain regions’ home prices rise quickly, but the nation’s asset price fluctuations are still comparatively gentle. Considering the trade tensions of last year and the COVID-19 epidemic this year, the property sector has shown its stability in the face of strong impacts.
From the monetary policy perspective, the steady currency, abundant interbank liquidity, lower interest rates, and ample capital supply … all of them are creating a favorable financial environment for the real estate market to stabilize.
Considering the complex and ever-changing external environment, and the fact that the broad economy is still at its early stage of recovery after a big-margin negative growth in the first quarter, we expect the macroeconomic policy will not tighten in the second half of the year.
The relatively tolerant macro policy environments leave the property market in a better position to maintain healthy and stable operations. It is more appropriate to manage the real estate market with market-oriented methodology, without stimulus or tightening.
It is true that the property industry still needs structural adjustment from a long-term perspective. The risks brought about by rapid home price rise should be borne in mind. There is some experience and lessons that we could learn from Japan and South Korea, whose property sectors experienced a big recession during the Asian Financial Crisis of 1998.
For sure, China’s special conditions of urbanization provided enormous demand for the real estate industry, and the nation’s further enhancement in per-capita GDP and growing amount of urban population helped build a solid foundation for the smooth operation of real estate market as well as keeping risks under control.
Property industry is still key to China’s economic development. The real estate sector’s contribution to GDP is significant, and from a certain perspective, it could be regarded as the most important durable consumer product. With per-capita GDP steadily growing, Chinese people’s demand for property is persistently on the rise.
China is currently in the process of rapidly expanding its urban population from 60 percent of the nation’s total to 70 percent. The home prices appear overheated in certain regions, and hence the impact of the industry on the Chinese economy may get distorted, further complicating the big picture.
Two points deserve attention here.
First, the structural imbalance between the real estate industry’s supply and demand within a region puts home prices under pressure and keeps them from rising. And such an imbalance will intensify once the broad economy enters a cycle of loose monetary policy. With regard to the scale of the property sector, fluctuations in the industry will have a negative impact on the Chinese economy in general.
Second is the negative impact of high home prices. Although risks of a bubble-burst are still small for China in the short－to medium-term, the negative consequences of high home prices should be attended to, especially that relating to the operations of enterprises in large cities.
High home prices will push forward land rent and labor cost, posing a threat to development of technological innovation centers in top-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen.
Once the regional structural disproportion is combined with the abundant capital like it is happening now, solutions come from the cause of the structural problem itself.
The value of property as an asset is defined by demand and supply. Therefore, home prices would not rise constantly if supply and demand are balanced, and market expectation will also be stable.
In dealing with the structural problem, the most important and most fundamental part is the supply of, and demand for, land. Data collected in the past two decades proved that it is necessary to make adjustment to match supply and demand. The settlement of relations among population, industries and land will effectively solve the regional imbalance issues, and will further play an important part in taming home prices.
Differentiated financial regulating policies should be introduced, in accordance with regional supply and demand conditions.
To reiterate, the property market will recover further.
First of all, thanks to the effective control and prevention measures adopted domestically against COVID-19, consumption in particular is resuming quickly, and real estate, it can be argued, is an important consumer durable, and pent-up demand for it is going to be digested in the following months.
Then, the central government’s regional economy integration strategies, including the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta region development among other city clusters are creating solid demand for properties in these regions.
Last but not least, the central government’s latest policies on further urbanization will guide talent to enter a wider range of Chinese cities, which will generate more demand for properties.
The comparatively friendly financial environment for the moment is also a stable support for the real estate market, and it creates an agreeable financial environment for the sector’s further restoration in the second half.
The overall demand for properties is on track for rebound in the short-to medium-term. Therefore, we can expect the market to gain more in restoration. It is worthwhile to adjust some ill-formed activities, so as to maintain the healthy and stable development of the Chinese real estate market.
The writer is a chief economist at the Zhixin Investment Research Institute. The article is based on his speech to a China Macroeconomic Forum seminar.
The CMF, initiated in 2006, is an outreach program of the Renmin University of China to foster new-age think tanks.
The views don’t necessarily reflect those of China Daily.