Wang Shi talks about real estate

hkn

Wang Shi talks about real estate [Copy link]

Wang Shi: The residential industry - at the crossroads of differentiation and harmony

2006-7-31

The statistics on housing prices this year still look optimistic, but the public's perception of housing price changes is not completely consistent with the figures, and public opinion has not cooled down on housing prices. Which is more convincing, numbers or intuition? This is not the most important question. What is important is that since 2004, the rapid rise in housing prices has indeed lasted for a long time and has become unavoidable.

The rapid rise in housing prices has worried consumers and the government. Many people believe that only developers are happy. However, no one can benefit from the rapid rise in housing prices, not even developers. An overly excited market is by no means a real boon to the real estate industry. Steady development is the blessing of the industry.

When I talked to some of my colleagues about the housing price issue, we all felt quite worried. The development of China's real estate industry has reached a crossroads. How can we move towards a harmonious and healthy path in the future? This is not only a problem facing the industry, but also a problem facing society.

Is it because housing prices are too high or is it because of the gap between the rich and the poor?

Since 2004, the rate of house price increase has obviously accelerated. At the same time, middle- and low-income families are increasingly finding it difficult to afford a house. On the surface, the causal relationship is very obvious: the reason why people cannot afford a house is that it is too expensive. However, if we dig deeper, I am afraid the problem is not that simple.

There is no absolute standard to say whether something is expensive or cheap. Expensiveness is relative to income. In recent years, when people say that housing prices are too expensive, the most commonly used concept is the housing price-to-income ratio. So, what is the housing price-to-income ratio in China? Is it too high? Is it getting higher and higher? The conclusion may surprise us. In the past 15 years, the housing price-to-income ratio has generally been on a downward trend. Let's look at another set of data. From 1998 to 2004, the average housing price increased by 43%; while the residents' disposable income increased by 72%; and the deposit balance increased by 158%. From the 7-year time span, the average wealth growth of residents is much higher than the average housing price growth.

If the argument that China's housing price-to-income ratio is getting higher and higher is not true, then is it because China's ratio has always been high? In 1998, the United Nations Habitat Center had a statistical data that the average housing price-to-income ratio of countries around the world was 8.4, and the median was 6.4. China's housing price-to-income ratio is slightly higher than the median, but significantly lower than the average. It can be seen that the reason why low- and middle-income families cannot afford to buy a house is not because the housing price-to-income ratio is too high, nor can it be simply said that the house is too expensive. So where is the problem? The problem may lie in the word "average". All the data above use average figures. Judging from the average figures, everyone should be able to afford a house, but the problem is that everyone's income is not average. According to relevant data, the richest 20% of people in China account for almost half of all income. The richer the person, the higher the proportion of money they can use to buy a house in their total income. Therefore, in terms of housing purchasing power, the rich 20% may occupy more than half of the country.

What do rich people buy if not houses?

Why are houses sold to the rich? This is actually a pseudo-question. It is not because the house prices are too high and only the rich can afford them, so the houses are sold to the rich; on the contrary, it is precisely because most houses are bought by the rich that the house prices are high.

So the current situation is that low- and middle-income families have difficulty finding housing, while the rich can not only afford to buy large houses, but also buy houses for investment. But why do the rich buy so many houses? There is another question behind this, which is "If they don't buy houses, what do they buy?"

In most market economies in the world, when the gap between the rich and the poor widens, it generally means that the competition for labor is more intense than that for capital, and the return on capital is higher than the return on labor. This has a suppressive effect on real estate investment, because the higher the average social investment return rate, the greater the cost of investing in real estate, and the lower the relative return level. However, for a transitional country like China, a special situation may occur, that is, when the gap between the rich and the poor widens, the level of investment return decreases.

Since 2004, the interest rate of US Treasury bonds has been rising steadily, while the interest rate of Chinese Treasury bonds has been on a downward trend. Currently, the interest rate of US 7-year Treasury bonds is nearly twice that of China. Taking inflation into account, this gap should be more obvious. China's largest capital market is the stock market, but since 2000, China's stock market has been in a bear market for several years, and it did not improve until the fourth quarter of 2005. During this bear market, on average, stockholders not only did not get any returns, but their overall wealth shrank significantly.

In addition to the rate of return, the lack of investment channels is also one of the reasons why a large amount of funds have poured into the real estate investment market. In China, financial products are single, and the pace of financial innovation seems to be unable to keep up with the pace of economic development and wealth accumulation. Independent investment in industry is subject to many access restrictions, and the system costs and transaction fees are high. Under such circumstances, a lot of funds have entered the real estate and raw material markets, which is actually a helpless move. In addition to the rich, there are many middle-class and ordinary citizens who have joined the real estate investment. Most of them are follow-up in nature, and their pace is half a beat slower than the main investors. Therefore, they have less profit in the price rising stage, and once the market fluctuates, they are the biggest victims. However, they still rush to join in, which can only show that our current investment channels are indeed too scarce.

Therefore, to solve the problem of a large amount of funds pouring into real estate investment, the fundamental way out is to open up investment channels and give people more choices.

It’s time to stop overspending on housing

The purchasing power of the rich is there, and they currently have few investment options, so a large part of their money has to be used to buy houses. In this case, even if house prices fall, or even if they are rigidly "controlled", the purchasing power of the rich and the poor will rise simultaneously, and more than half of the houses will still be bought by the rich. As for the queues for the competition, they can hire people to queue; if they implement the real-name system, they can use the names of relatives and friends, and even "scalpers" will appear. This is a common situation in the world, and there is no reason why China will be an exception.

Therefore, whether low- and middle-income families can live better depends on the supply of houses. However, the situation in this regard is not optimistic. In recent years, the number of newly added urban housing has been decreasing year by year. Although the supply of commercial housing is increasing, the supply of all housing has been greatly reduced since 2002.

According to this research result, to achieve the goal of 33 square meters of per capita building area in 2015, the existing land supply capacity can only meet less than half of the requirements. We believe that considering the supply capacity, income level and income structure, the reasonable average household area in 2015 should be below 87 square meters. The current situation in China is that the average household area of existing residential buildings is about 100 square meters, and the area of new residential buildings is tending to be larger and larger. Such an area is not particularly economical even by American standards. Moreover, China is far behind the United States in terms of per capita land resources and per capita wealth. If calculated based on registered population, the per capita housing area in our cities has reached 25 or 26 square meters, which is the housing area of an upper-middle-income country.

Therefore, China has always had the problem of over-consumption of housing. The contradiction between over-consumption and resource shortage is becoming more and more acute. It is urgent to stop over-consumption and change the concept of living. The concept of living in the future must change from pursuing area to pursuing quality, so as to reduce the abuse and dependence on land resources and more effectively solve the housing problems of as many people as possible. From the perspective of the industry, to adapt to the change of living concepts, it is necessary to promote industrialization, improve cost-effectiveness, and enhance the quality, service life and energy-saving performance of housing.

hkn

There is another interesting data about encouraging rental properties. Many Americans rent their homes, half of Europeans do not own their own homes, and our home ownership rate has reached more than 80%. China's urban home ownership rate is not only higher than that of the United States, but also higher than that of almost all developed countries or regions. In the past, Chinese people did not own their own houses, but now they have gone to the other extreme: if they want to live in a house, they buy it, and they are not willing to rent it. There are also very few houses for rent. Why? In addition to consumption concepts, I am afraid we also need to review our financial policies. Developed countries mainly rely on rental properties to solve the housing problems of low- and middle-income families. And this industry has been able to develop mainly with the support of the financial industry. Now Chinese developers build houses, basically for sale. And now real estate buyers basically also want to resell them to the next buyer. This is very different from the situation abroad, but the reason is not because of the different interests of domestic developers or investors, but because of the financial environment. If developers build houses but do not sell them but rent them out, it involves the problem of capital not being able to be recovered. If the capital cannot be recovered, reproduction and development cannot be achieved in the future. Now banks are still very willing to provide personal mortgage loans, but the restrictions on loans to developers are becoming more and more stringent. Even if private investors are willing to provide developers with funds to support rental properties, they cannot find a suitable channel. In foreign countries, this problem is mainly solved through REITs, but China does not have this financial product yet. Commercial real estate is now one step ahead, but the turnaround in residential properties is not obvious. If commercial real estate is built and sold immediately, it is very difficult to sell the entire property. In the end, it will be sold in small pieces like residential properties. However, commercial real estate requires overall management and operation, which is different from residential properties. If this embarrassing situation occurs, commercial real estate will be very bad. Fortunately, foreign funds have begun to intervene in recent years, and commercial real estate has turned around. The overall holding and leasing model has begun to be established. It is not easy to make everyone able to afford a house. From the perspective of foreign experience, it is even unnecessary. The key is to make everyone able to afford a house. The existence of a large number of rental properties is a very important link. Therefore, the development of rental properties should be encouraged, and developers should be encouraged to change from pure sales to both rental and sales. In order to achieve this transformation, I am afraid that certain preferential policies need to be given, or space needs to be provided for the innovation of business models, especially the establishment of financial support is very critical. The road to harmony The differentiation of income levels has brought the real estate industry to a sensitive and conflict-ridden situation. To move towards harmony and health in the future, we are now at a crossroads and need the efforts of all parties. The government solves the problems at the policy level, and consumers also have the choice of living concepts. At such a special stage, developers should grasp their own direction. Now the gap between the rich and the poor is very large, and real estate is a hot topic. Developers are sitting on the cusp of the storm. It is hard to say that it is wise to remain indifferent. At such a stage, developers should step out of this industry and think about how to take our responsibility to ease the contradiction from a broader social responsibility perspective. There is a three-way distribution process of social wealth. The first distribution is the market economy, which encourages people to create wealth and pursues to make the total social wealth bigger so that some people get rich first; the second distribution is the government's tax and welfare policies to protect vulnerable groups and promote social equity; and the third distribution is the wealthy class actively promoting social harmony by engaging in public welfare. From the perspective of the developer's responsibility, in the first distribution, it is mainly to operate in accordance with the law and rely on professional ability to create profits; in the second distribution, it is mainly to pay taxes according to regulations, and the taxes are given to the government, and the government decides how to distribute them. In these two aspects, many well-managed enterprises should have done well, but there may not be many people thinking about the third distribution now. The third distribution should be a focus of current discussion. How responsible and capable enterprises and wealthy people can take some money out of their pockets to do something, and how to maximize the effect of these things, this is a big subject. Since the 20th century, American entrepreneurs have spent the first half of their lives studying "ways to make money" and the second half of their lives studying "ways to spend money", and this is a common situation, and the latter is no less challenging than the former. Of course, the road to harmony is long and arduous. What we are doing now is just the beginning. Author: Vanke Co., Ltd.