As we enter the second quarter of 2018, the downward pressure on the Chinese economy continues to increase. At the same time, various regulatory policies are still being promoted in accordance with established arrangements. Among such policies, the regulations on the real estate market in various regions in China are still being tightened. From the perspective of efficacy, the space of local economy and finance is further reduced.
The general trend shows that China's real estate market is facing historic adjustment. In the second phase of China's urbanization, the mode of real estate expansion and the degree of dependence on the local economy in the real estate industry will see transitional adjustments. However, as a result of China's rapid urbanization, real estate has already had huge market. According to the forecast of the global real estate services provider Savills in August 2016, the real estate market value of China was about RMB 270 trillion, four times the GDP of 2015, which was RMB 67 trillion. Since then, it has been estimated that the real estate market value of China has reached RMB 300 trillion.
Obviously, such a large stock of assets cannot and should not be ignored. An important purpose of real estate regulation and control, in addition to restricting the asset bubble caused by the rapid rise in housing prices, is the fear that the bursting of the bubble will trigger systemic financial risks and drag the state-owned banking system into quagmire. However, tightening regulation does not mean that the cities would forsake real estate; instead, the real estate industry that needs to change its development mode. From a macro perspective, real estate does not occupy too much of the economic resources in the Chinese economic system.
How should China position the real estate industry in the future? How should the real estate industry be developed? In an internal discussion, Anbound's chief researcher Chan Kung mentioned that real estate development and real estate industry should be separated. Chan Kung explained that in recent decades, various cities in China have been engaging in the real estate industry, which in fact is land development as the foundation in large and rapid scale. The development model is based on increasing land development, obtaining land transaction fees and development benefits through the expansion of urbanization. Most of the developers are launching unprecedented real estate products. Therefore, the term "real estate developer" can be aptly used to describe real estate practitioners. The corresponding urbanization is also the development of urbanization.
However, this will not be true to the real estate industry in the future. Chan Kung emphasized that real estate is an industry, and actual industry should have value; therefore, valued real estate should be the focus of future real estate development. On the products, development can be continued, but should be small-scale and high-quality; such kind of industrial development should not be denied. Even in the West where the urbanization rate has reached 80-90%, and the real estate industry still has to continue. However, that is real estate industry that really emphasizes on value, not real estate land development. To cite an example, the density of the New York City is quite high, but there is still real estate; the city even produced real estate entrepreneur like Trump.
Some Chinese officials actually understand this reality. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, previously stated that when the Chinese economy is in a period of high growth, infrastructure and real estate investment play a large role; in the stage of high-quality growth and development, the scope of coverage is relatively wide. It is not that conventional investment no longer works; real estate is still one of the driving forces for economic growth. However, the demand for real estate is diversifying; the houses that have been constructed might not be sold that easily these days, this means that real estate must meet the changing needs of everyone.
In addition to the construction of new value properties, real estate renovation and renewal under the concept of urban renewal, as well as a variety of service industries derived from real estate, is also an important way to develop the real estate industry in the future. From the perspective of the law of global urban development, after the large-scale development model, management of real estate assets is the inevitable result of the development of the real estate industry. In urban FIRE (finance, insurance, real estate) service industries, real estate plays a crucial role.
From the point of view of urban asset management, urban real estate is actually a sustainable industry; as long as there are people and businesses in the city, there will be real estate. The real estate industry at this stage must provide high value real estate products and it should be urban asset management industry as well.
It should be pointed out that in the current situation, the differentiation of real estate development and real estate industry at the policy level is of great significance for China. The former was to make large-scale expansion and to obtain profits from the land economy as soon as possible; the latter is to enhance the value carefully, to produce a small-scale market and to conduct asset management. With different positioning of real estate, the policies would be different, and the development model and methods would be different as well.
Final Analysis Conclusion:
Real estate regulations and control are not to strangle the real estate industry and eliminate the real estate market, but to change the development model and means to promote this industry from scale based development to value management. For urban administrators, figuring out the differences will lead to different industrial development ideas.
