Evaluating Conditions in Major Chinese Housing Market1
Pei Kuang
Uni Frankfurt and Uni Mannheim
July 2012
1Contents based on Wu, Gyourko, & Deng (2010) "Evaluating Conditions in MajorChinese Housing Markets", NBER Working Paper No. 16189
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Outline
Chinese Housing and Land System
Prices in the Beijing Land Market
Housing A¤ordability Metrics for Eight Major Chinese Markets
Interpretation and Conclusion Discusions
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Chinese Housing Reform I
1949-1978
No private ownership of property is permitted
State determined the national econ. plan & monopoly provider ofhousing
Housing is allocated by employers (Danwei: SOEs or Gov�t) toemployees
No mortgage market exists
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Chinese Housing Reform II
1979-1988
trial privatization (in several coastal cities & expanded to 100+ citiesand then the entire country)
emergence of a private housing market
�rst private housing developer was founded in Shenzhen in 1980
mainly targeted foreigners or employees of non-state-owned enterprises
limited in scope and grew slowly
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Chinese Housing Reform III
1988-1998
1988 Constitutional Amendment: legal foundation for development ofprivate sector housing
government retained ultimate ownership of urban lands
permitted individuals to purchase the right of use of that land forurban residential purposes for up to 70 years
a series of measures and policies to accelerate the development ofprivate housing markets
work units were required to gradually terminate the direct housingallocation system
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Chinese Housing Reform IV
1998-
the State Council issued the 23rd Decree
Work units were no longer allowed to develop new residential housingunits for their employees in any form
integrate any implicit housing bene�ts into employees�salary
households had to buy or rent in the private housing market
start of the modern private housing market in China.
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Public Housing Sector
low-income household: rent low cost units (�Lian Zu Fang�) orpurchase special a¤ordable units (�Jing Ji Shi Yong Fang�) at highlysubsidized prices from local governments
Moderate-income households can obtain subsidies to rent publicrental units (�Gong Gong Zu Lin Fang�) or to purchase pricecontrolled units (�Xian Jia Fang�)
very limited construction of public housing in recent years
changed in 2007 the State enacted a series of policies to acceleratethe development of public housing
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The Urban Land Supply System and Land Market
Governments lease land parcels to developers, developers then buildhousing units
The �rst land auction was held in Shenzhen in 1987
Most land parcels were not sold publicly via auctions or biddings ->below market prices (criticized)
In 2004 the State required that all urban land could only betransacted through public auction or bidding
Land auctions are an important revenue source for local government
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Prices in the Beijing Land Market
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Housing A¤ordability Metrics for Eight Major Chinese Markets
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)
Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equity
Moral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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Conclusions
Prices seems very risky
Very di¢ cult to explain fundamentally sharp rises in Price-to-Rentratio and Price-to-income ratios since 2008 in Beijing and many othercostal markets
Insu¢ cient supply in several housing markets
The impact on chinese economy
Direct impact (private housing investment accounts for 15.1% in 08and 13.2% in 09; 5.7% of GDP; 14.3% of all workers; consume 40% ofall steel and lumber)Systemic risk in the banking sector; higher equity but large price dropcan wipe out any amount of equityMoral hazard could be a real concern; less known about the capitalstructure of developers, especially the central SOEs.
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German Housing Prices and Positive Factors for PriceIncreases
Real price stagnation since 1970s (short-lived boom afterreuni�cation)
Overall price " 2.5% (2010) & 5.5% (2011, twice of in�ation);apartment price " 10%+ in e.g., Berlin and Munich
Positive factors for HP:
rising in�ationary pressure
construction has been lagged (e.g., Berlin)
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Negative factors for price appreciation
long term: demographic factors, population forecast 82million (now)# 79million (2025) & 70million (2050)
conservative German banking rules (normally require 20% orsubstantial collateral, proof of good earnings)
rents are tightly controled
the quality of �ats for rent is high and tenants are well protectedagainst rent increases and evictions
investors�expectations run counter to a bubble
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