The just-concluded Central Economic Work Conference has little to say with the real estate regulation; the only thing said is that "it is necessary to build a long-term mechanism for the healthy development of the real estate market; to insist that the houses should be for living, not for speculation; policies will be implemented according to local and urban condition, consolidating the main responsibility of the local government to improve the housing market and security system." Compared with the past real estate regulation policy, this statement can be said to be rather moderate. In addition to the emphasis on the principle of "houses should be for living, not for speculation", the idea of "differential approach in regulating the housing market for different places", "responsibilities of local government", and "improve housing market and security system" actually provides a lot of flexibility in local government policy.
According to the researchers of Anbound, the relatively moderate stance from the Central Economic Work Conference signals a turnaround at the top of the decision-making hierarchy at a particular time -- the central government does not want to show its 'strict control' over the real estate sector especially under the downward pressure of the economy, as the market would feel panic by tighter controls and thus worsen the economy. But does this mean that China will loosen its control on real estate, and the regulatory policies of real estate sector will shift sharply compared to the past? We do not think so. Increasing flexibility in short-term policies does not mean there will be a shift in the long-term regulatory policies.
Judging from the current situation of China's economic and real estate development, the long-term and structural regulation on real estate sector is not only aiming to stop the speculation on housing market, but also to adjust the industrial structure of China's financial resources and eventually drive "excessive" financial resources away from the real estate sector. In a few decades, China has gone through the urbanization process that took other countries hundreds of years to complete, which is marked by the extraordinary development of real estate. So far, if we look at the number of houses, we would see there are enough of houses for the population in China.
At the "20th Peking University Guanghua New Year Forum" held in Beijing on December 23, Tian Guoli, Chairman of the China Construction Bank, said that he has been engaging in the financial sector for a lifetime, but now he is unable to profit by simply buying houses, as the houses in China are over-priced nowadays. Tian added that China's current real estate market is over-developed, exceeding the real estate market of Europe and the United States. According to statistics, housing assets in the United States have reached USD $30 trillion, while Chinese housing assets have reached USD $40 trillion. In addition, based on the international statistic, the 1.1 ratio of population to houses in China which indicates there is 1.1 houses per capita is basically enough for Chinese to stay, but why is the housing prices in China is expensive? Tian believes that there is now more of a housing structure problem. The United States is a developed country and one-third of the citizen rent houses; in Germany 40% or more of the population is renting houses, it is difficult to speculate real estate in these markets. In contrast, only 10% or lesser of people in China is renting houses. Moreover, China also has a high housing vacancy rate. During the subprime mortgage crisis in the United States, the vacancy rate of housing in United States was less than 10%, and that of Japan was about 13%. Currently, the vacancy rate of housing in China has not been released, but it is estimated that the vacancy rate of housing is much higher than that of the United States and Japan.
It is worth noting that real estate has a strong "siphon effect". Currently in China, the basic allocation of domestic residents' assets is basically 60% to 70% in real estate sector. When a large amount of money is used to build houses, there is naturally no money to do anything else, such as research and development, consumption would also be affected by the allocation of spending. Tian pointed out that the total amount of financial credit in China's real estate sector is RMB 38 trillion, accounting for 28% of the total amount of financial credit, and the growth rate of credit is still rising. Although China has the institutional advantages, there is a limit of these advantages, with the lessons of Japan's real estate bubble and the United States subprime mortgage crisis, China should not make the same mistake as what Japan and United States did.
As the Chairman of China Construction Bank, Tian's statistics on the occupancy of financial credit resources by real estate are credible. When real estate alone accounts for 28% of China's credit, it inevitably occupies financial resources that could be used for other industries; when real estate credit sucks up the incomes of many families in future decades, it is bound to squeeze private consumption; when the urban economy relies on real estate and land finance in a large extent, it will inevitably continue to push up the price of urban assets and increase the comprehensive cost of the city.
Anbound has repeatedly expressed the view that the key to China's current economic development is not to reduce taxes, but to reduce the overall cost of society, to promote enterprises to expand in the domestic market. The comprehensive cost reduction in China mainly conclude in three aspects. First, the high cost of high housing prices and land prices is killing most urban industries and destroying the commercial prosperity of cities, and at the same time increasing the "parasitism" of the domestic economy, which the domestic economy rely on the asset income generated by the rise of real estate price or rent; secondly, the institutional cost caused by the poor domestic policies and systems; third, the high capital cost caused by the obstacle of financial resource allocation. Among them, the most important cost factor is the high cost of urban assets represented by the high housing price.
In terms of the structure of China's economy, real estate regulation and control is a long-term restructuring; through the continuous regulation of the real estate market, it will gradually "drive" financial resources away from the real estate sector, so that future financial resources will be transferred to other industries, and at the same time it will release more economic resources for consumption. Anbound compared real estate to "heroin" in the Chinese economy (especially the territorial economy); it is a land economy based on land finance that make local governments, banks, and developers unable to resist it, where all parties are enjoying the euphoria of the risen asset bubble. Looking at China's real estate development from a historical and macro level, this is a link in the "crisis triangle" model of urbanization, capital surplus and economic crisis, which emerged from the rapid urbanization process, as pointed out by Anbound.
Final analysis conclusion:
There are enough of houses built in China. In the future, financial resources should be gradually move away from real estate sector without triggering financial risks.
