What to ex­pect in re­alty mar­ket in long run?

China Daily (Hong Kong) - - VIEWS -

China will pro­mote the sta­ble and healthy de­vel­op­ment of the real es­tate mar­ket next year, ac­cord­ing to the just-con­cluded Cen­tral Eco­nomic Work Con­fer­ence. The con­fer­ence made it clear that “houses are built to be in­hab­ited, not for spec­u­la­tion”.

Af­ter last year’s Cen­tral Eco­nomic Work Con­fer­ence made de­stock­ing one of the gov­ern­ment’s ma­jor eco­nomic tasks, the real es­tate de­stock­ing cam­paign led by the cen­tral and lo­cal govern­ments has had a ma­jor im­pact on China’s prop­erty mar­ket.

On the one hand, de­stock­ing in some first- and sec­ondtier cities led to panic buy­ing and sky­rock­et­ing hous­ing prices. On the other hand, thir­dand fourth-tier cities are un­der tremen­dous de­stock­ing pres­sure.

With re­alty con­trol poli­cies be­com­ing in­creas­ingly stricter, de­stock­ing faces se­vere chal­lenges in the year ahead. Real es­tate in­ven­tory na­tion­wide de­clined sharply dur­ing the bullish prop­erty mar­ket last year. In Oc­to­ber, na­tion­wide “prop­erty ar­eas” of hous­ing units for sale in­creased only 1.3 per­cent year-on-year, while na­tional res­i­den­tial hous­ing ar­eas for sale fell 6 per­cent year-on-year. This means prop­erty de­stock­ing, in gen­eral, has been ef­fec­tive in 2016.

But a huge num­ber of hous­ing units ready for oc­cu­pa­tion awaits buy­ers. From Fe­bru­ary to Oc­to­ber, the to­tal area of hous­ing units for sale na­tion­wide dropped from 739 mil­lion square me­ters to 695 mil­lion sq m. Given the stan­dard per capita liv­ing space area of 35 sq m, the over­all area of hous­ing units for sale could pro­vide ac­com­mo­da­tion for 200 mil­lion peo­ple. Since the newly added pop­u­la­tion of per­ma­nent ur­ban res­i­dents in 2015 was only 22 mil­lion, it will take about a decade, other fac­tors re­main­ing con­stant, for the va­cant hous­ing units to be filled up if we de­pend only on new per­ma­nent ur­ban res­i­dents to achieve the goal of prop­erty de­stock­ing.

But if we take the un­der- con­struc­tion hous­ing units and hous­ing units with lim­ited prop­erty rights into con­sid­er­a­tion, prop­erty de­stock­ing faces a greater chal­lenge.

More than 70 per­cent of the hous­ing units for sale are in third- and fourth-tier cities, but the ef­fects of de­stock­ing were ev­i­dent mainly in the first- and sec­ond-tier cities.

Ac­cord­ing to the sales data of 40 large and medium-sized cities, hous­ing sales in first-, sec­ond- and third-tier cities in Oc­to­ber grew 37.59 per­cent, 53.43 per­cent and 26.72 per­cent year-on-year. Ap­par­ently, hous­ing sales in the third-tier cities are way be­hind those in first- and sec­ond-tier cities.

As real es­tate con­trol poli­cies be­come tighter than be­fore, hous­ing sales are ex­pected to fall in 2017, which could cre­ate more pres­sure on de­stock­ing. This calls for fur- ther deep­en­ing of prop­erty con­trol poli­cies.

Twenty-two cities have suc­cess­fully im­ple­mented real es­tate con­trol poli­cies, in­clud­ing purchase and loan re­stric­tions, since Septem­ber. These poli­cies have man­aged to re­mark­ably cool down the prop­erty mar­ket na­tion­wide. Na­tional Bureau of Statis­tics data show hous­ing prices in ma­jor first- and sec­ond-tier cities de­clined in Oc­to­ber on a month-to-month ba­sis.

But since prop­erty de­vel­op­ers and builders in­vest more in land in the first- and sec­ond-tier cities de­spite the con­trol poli­cies, re­alty con­trol poli­cies should be deep­ened in re­sponse to the sup­ply side struc­tural re­forms, es­pe­cially by pro­mot­ing re­form and in­no­va­tion in tax­a­tion, house­hold reg­is­tra­tion, so­cial se­cu­rity, ed­u­ca­tion and health­care, in or­der to cope with the dif­fi­cul­ties third- and fourth-tier cities face in de­stock­ing.

In con­trast to the ef­fects of de­stock­ing, hous­ing prices con­tin­ued to soar in 2016, es­pe­cially in the first- and sec- ond-tier cities. In Oc­to­ber, the hous­ing price in­dex in China’s top-100 cities in­creased 18.21 per­cent year-on-year. But these cities’ land pre­mium rate started de­clin­ing only in Septem­ber, which sug­gests hous­ing prices na­tion­wide could peak in 2016 be­fore pos­si­bly de­clin­ing in 2017.

The real es­tate mar­ket is typ­i­cally re­gional in na­ture, and lo­cal govern­ments al­ways want to hike hous­ing prices to get the max­i­mum ben­e­fit out of their mo­nop­oly over land sup­ply. As hous­ing prices de­cline, prop­erty de­vel­op­ers’ de­sire to buy land in some cities may also de­cline. This in turn may prompt lo­cal govern­ments to re­duce the sup­ply of land for long-term sus­tain­able de­vel­op­ment, which will be con­ducive to cre­at­ing a more healthy mar­ket en­vi­ron­ment for de­stock­ing.

The au­thor is a re­searcher at the In­sti­tute for Ur­ban and En­vi­ron­men­tal Stud­ies, Chi­nese Academy of So­cial Sciences.

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