Constructing Well-off China with Goals of “Home to Live in” ---- Economist Forum to Hold in Beijing
The economist forum ----“Constructing Well-off China with goals of ‘Home to Live in’”, sponsored by National Academy of Economic Strategy (NAES)and Social Sciences Academic Press of CASS, and co-organized by China Real Estate Business and Yangtse Evening, was held in CASS academic hall on December 13, 2012. This forum also released two intermittent achievements of National Social Science Fund: Probe into the Development Mode of Low-income Settlements in the Urbanization Process ---- the Experience of Shantytowns Reconstruction in Liaoning and the Annual Report on Development of Housing Market in China (2012-2013), and held a seminar on economist real estate development. The forum was hosted by Shi Dan, Vice President of NAES of CASS. Li Shenming, Vice President of CASS attended the conference and made an important speech; Gao Peiyong, President of NAES of CASS made welcoming address on the forum; Shan Dawei, General Manager of China Real Estate Business, Wang Wenjian, Deputy Editor-in-chief of Yangtse Evening, and Cai Jihui, President Assistant of Social Sciences Academic Press made their speeches respectively.
Other economists and researchers present on the forum include Jing Renzhong, Vice President of Southwestern University of Finance and Economics, Wang Hongwei, Vice President of Shanghai University of Finance and Economics, Liu Hongyu, Director of Real Estate Research Institute of Tsinghua University, Yang Shengming, Commissioner of CASS, Yang Jirui, President of Chongqing Technology and Business University, Jia Shenghua, Director of Real Estate Research Institute of Zhejiang University, Jia Kang, Director of Finance Scientific Institute of Ministry of Finance, Gao Bo, Director of Real Estate Research Institute of Nanjing University, Gao Peiyong, President of NAES of CASS, Pei Changhong, Director of Institute of Economics of CASS, and Ni Pengfei, Director of Center for City and Competitiveness of CASS. Press representatives present include those from Xinhua News Agency, People’s Daily, CCTV, Guangming Daily, Economic Daily, Economic Information Daily, Social Sciences in China, People’s Daily Online, Xinhuanet, China Net, Guangming Net, China Economy Net, Chinese Social Sciences Net, China Economic Weekly, and Finance Weekly.
At first, the forum launched a new book, named Probe into the Development Mode of Low-income Settlements in the Urbanization Process ---- the Experience of Shantytowns Reconstruction in Liaoning. This book, written by CASS and UN-HABITAT together, is the world’s first academic monograph summarizing the experiences on China shantytowns reconstruction. Chen Fei and other members of this research group introduced the book contents: 1) urbanization bonus is the best one in China future development, but city disease is the biggest challenge for urbanization; 2) the housing is the first urban disease; 3) Liaoning shantytowns reconstruction is a comprehensive experiment to prevent urban diseases. The best policy value of Liaoning shantytowns reconstruction is to overcome urban diseases, develop low-income settlements, adhere to comprehensive, systematic and sustainable philosophy and methods, and “government-dominating and market-operating” system and mode, make strategies and plans that “all factors are considered”, and systems and policies of “constructing ancillary facilities to benefit people for long”, and carry out management and services of “normalization, order, human-oriented and self-governance”. Ten economists present made in-depth discussions on practical explorations on Liaoning shantytown reconstruction, experience references of overcoming and preventing urban diseases, establishment of China’s housing insurance system, and experience references on constructing well-off China with goals of “home to live in”. The experts said, “this is the world’s first academic monograph summarizing experiences on China shantytown reconstruction; Liaoning shantytown reconstruction explores complete solutions to solve urban diseases and low income residents’ housing issues; it has important theoretical and practical meanings in preventing urban diseases, establishing China’s housing insurance system, and constructing well-off China with goals of “home to live in”.
Later, the forum launched another book, named Annual Report on Development of Housing Market in China (2012-2013). Ni Pengfei and other members of this research group introduced the book contents: 1) the macro economy growth in 2012 was partially offset by the real estate industry, but no longer over-dependent on it; 2) the housing market regulation in 2012 reached its next-best target that housing prices were comparatively decreased; 3) the development trend of 2013 China housing market is stably growing but with small fluctuations; 4) 2013 China housing market is vulnerable to both “overall rebound” and “partial collapse” risks at the same time; 5) the target task of China housing market regulation in 2013 is to expect rational return of real estate market, and keep real estate market stable but a little growth.
At last, the forum made an academic symposium on real estate development participated by ten economists. The symposium talked about China economy trend and prospect after “18th CPC National Congress”, useful and practical experiences learnt from Liaoning shantytowns reconstruction to establish China’s housing insurance system, urban diseases and other challenges occurred in urbanization process, how to balance “stable growth” and “housing price control”, how to defoam the real estate industry, how to make nationwide reforms on taxation system of the real estate industry, and some other topics.
Attached: press statements of the launching ceremony of Green Book of Housing Market 2013 and 2012-2013 Housing Trends and Policies Seminar.
Green Book of Housing Market 2013 released by CASS states that:
Domestic macroeconomic managed to maintain stabilization in downturns and witnessed positive changes;
Dragged down by real estate industry, the macroeconomic managed to get rid of the over-dependence
on real estate industry.
Co-organized by National Academy of Economic Strategy and Social Sciences Academic Press of CASS, the launching ceremony of Green Book of Housing Market 2013 and the opening ceremony of 2012-2013 Housing Trends and Policies Seminar was held in Beijing on December 13, 2012. The meeting discusses the practical problems and major challenges facing the real estate development in China; analyzes the overall trends of China’s housing market and other related markets; forecasts the housing development trend of China between 2012 and 2013 and officially releases the Annual Report on Development of Housing Market in China (2012-2013) published by Social Sciences Academic Press.
The Green Book of Housing Market points out that domestic macroeconomic managed to maintain stability in downturns and witnessed positive changes and although dragged down by real estate industry, the macroeconomic managed to get rid of the over-dependence on real estate industry.
Investment in real estate is stabilized after some downturns. From January to October in 2012, the total investment in real estate accounted to 5762.9 billion Yuan with a year-on-year nominal growth of 15.4%; the growth rate is flat with that of January to September yet the growth rate dropped by 15.7% when compared to that of the same period of 2011. Taken the statistics of October as an individual unit, the total national investment in real estate accounted to 653.8 billion Yuan with a drop of 10.5% with that of September, 2012 and with an increase of 15.5% when compared to that of the same period of 2011.
Domestic economic growth rate managed to maintain stability in downturns and witnessed positive changes and although dragged by the decrease in investment in real estate market. The economic growth in the fourth quarter in 2011 and the first three quarters in 2012 were 8.9, 8.1, 7.6 and 7.4 respectively, the comparative growth with last statistical time were 1.7, 1.5, 2.0, 2.2; but the annual economic growth rate is expected to achieve 7.7%, which can be serve as the indicator of the weaken degree of dependence on real estate growth.
(See contents listed above on 2013 Green Book of Housing Market-Annual Report on Development of Housing Market in China (2012-2013), Page 1-3, Social Sciences Academic Press, published in December 2012)
The 2013 Green Book of Housing Market released by CASS points out that:
The real estate market regulation initially realized objectives such as curbing rapid rising of housing prices in 2012 and other targets.
The Green Book of Housing Market points out that: in the year of 2012, in order to consolidate the real estate market regulation policies, the central government continues to further enhance the execution force of policy implementation with unshakable determination; and these policies are reiterated in many occasions to curb irrational demands; the house purchase quota policy of the real estate market regulation policy is insisted and the subprime goals are initially achieved, namely: first, the rapid rising tendency in housing prices is primarily restrained; and taking into account the growing trend of residents’ income, the relative housing price is actually reduced; second, the construction goals of indemnificatory housing program are completed ahead of schedule. From January to October of 2012, the number of newly started government-subsidized housing in cities and towns in China is 7.22 million units and the number of basically completed units is 5.05 million; third, macroeconomic not only initially achieves stabilization and recovery but also witnesses some positive changes. Consumption has become an important driving force and the economic structure has improved and macroeconomic dependence on real estate is weakened.
The optimal objective of “the rational return of housing prices” has not been achieved in 2012: the reason behind this is that in the context of overall fall back of housing prices in China, the fine-tuning policy designed as solution in response to the over speed decline in macroeconomics affects the real estate market; together with the disguised loosening of local governments in the policy implementation, the market expectation inverse which leads to market panic; and the rational return process is interrupted by the repeated sudden rises in July; although the central government restricted the administrative control policy later again, the expectations of various parties are changed and as a result, obvious changes the fall back tendency occurred in the market and made the latter edged into the shock stage again. (See contents listed above on 2013 Green Book of Housing Market-Annual Report on Development of Housing Market in China (2012-2013), Page 14-15, Social Sciences Academic Press, published in December 2012)
The 2013 Green Book of Housing Market released by CASS analyzes that:
Since the fourth quarter of 2011, the housing market trend witnesses twists and turns;
Affected by the adjustment game between the central policy, financial institutions and local governments
The Green Book of Housing Market points out that: since the fourth quarter of 2011, the market tendency of real estate market is the result of the cooperative and competitive games between many participated parties, especially represents the results of the cooperative and competitive games between parties in terms of the central regulatory policies. In general, is it the central government that emphasis the strengthening of housing control and regulation policies for the local governments to strictly enforce those policies, as a result, expectation of down turns is formed in the market; later, the fine-tuning of central macroeconomic policies affects the real estate market, together with the disguised loosening of local governments in the policy implementation, the market expectation inverses and leads to market panic; which leads to further market rebounds; with the central government restricted the administrative control policy later again, the expectations of various parties are changed again as a result; since the economic policies remain unchanged, the real estate market enters into the stage with marginal increases again.
1. Adjustments on the regulation of macroeconomic and real estate market done by the central government. In the fourth quarter of 2011, the central government actively lowered the macroeconomic growth goals and implemented strict real estate control policies. In the context of slow global economic recovery and the over speeded drops in the level of domestic economic growth and price level, the RMB deposit reserve ratio was lowered by 0.5% for two times, in February, 2012 and May, 2012 respectively. On June 8, 2012, the central bank reduced its interest rates for the first time in three years. On July 5, 2012, asymmetrical reduction on the interest rate was done by the central bank for the first time in four years. On July 25, the Supervision Group of the State Council went for inspections in different parts of the country, and related departments reiterated the unshakable persistence in the strict implementation of relevant regulation and control policies.
2. The adjustments of financial institutions on housing credit policy. First, increase the benchmark interest rate for the first home. The adjustments of financial institutions on housing credit policy include: the increase of the benchmark loan interest rate for the first home by major commercial banks since October 2011; the increase range in Beijing, Guangzhou, Shanghai, Shenzhen and Hangzhou is about 5-10% while increases in some other cities are as high as 50%; second, lower the benchmark interest rate for the first home. On June 8, 2012, the central bank announced its decision to lower the deposit and lending interest rates of individual housing provident fund by 0.2 percentage points. On July 5, 2012, the central bank lowered its interest rates again, which was the asymmetrical reduction on the interest rate done by the central bank for the first time in four years, corresponding adjustments of the deposit and lending interest rates of individual housing provident fund were also done. Meanwhile, the central bank required commercial banks to remain the prescribed minimum of the floating range of individuals’ housing loan interest rate at 0.7 times of the benchmark rate.
3. Changes in the enforcement of the local government in the implementation of regulatory policies. First, the local government started to seriously implement the regulatory policies since the second half of 2010. Second, in the first half of 2012, under the pressure caused by increasingly severe financial revenue and expenditure, some local municipal governments frequently tempted the bottom line of the central government on the strict enforcement of regulatory policies at the time of fine-tuning process, this caused the fine-tuning of the regulatory policies related to real estate market to become more and more severe, (according to incomplete statistics, there are about 40 cities in China that clearly issued documents to specify the fine-tuning regulation policy on real estate market, which involves aspects such as the adjustment of the standards of the first home, the change of payment of the transfer fee of land change and the increase of credit limits based on housing provident fund in the first half of this year. ) Third, under the great administrative pressure given by the central inspectors, local government decided to strict implement the regulatory policies again, local governments including Shanghai, Beijing, Nanjing, Xi'an and Hangzhou adopt more stringent restriction and limitation on purchase quota and measures like limited price, limited benefits, limited auction and other measures respectively.
4. Third rounds of changes occurred in the housing market expectations. First, a clear downward expectation was formed in the fourth quarter of 2011 and the first quarter of 2012. Second, rumors of fine-tuning of monetary policy and regulation relaxation led to the changes in market expectations since May 2012. Third, the re-strict regulatory policies of the central government led to another reverse of the market expectation since July 2012. Fourth, the central government did not take any effective economic policy to stop the continuous divergence of the expectation from happening.
5. The decision-making and behavior of real estate developers changed. First, in the fourth quarter of 2011 and the first quarter of 2012, in the general context of constrained overall funding and pressured inventory, property developers’ investment motivation was dampened, thus most real estate enterprises chose to reduce the construction volume and postponed construction operation; most of the property developer might decide to stick to marketing strategies of “accelerated delivery, and lowered the price for more trading volume” and other marketing strategies to accelerate the return of funds. Second, encouraged by the success of the marketing strategies of “lowered the price for more trading volume” in some properties for sale and influenced by the market expectations, the property developers might adjust their marketing strategies by cancelling discounts, or even rising prices or expanding the sales. Financial situation of Development Enterprises were gradually improved (see figure below). Third, in the situation of differentiated market expectation, property developers’ purchase of land and construction areas might go through twists and turns again. (see image below)
6. Decisions and behavior of home buyers changed. First, under the strict regulatory policies and expectations of falling house prices, investment and speculation demand exit from the real estate market and households with improvement demands and rigid demands decided to reduce the current consumption and wait for lowered prices. Second, on the one hand, since the falling of prices in 2011, considerable improvement demands and rigid demands had been accumulated in the market and some changes occurred in the expectation of market price trend; out of the concerns about prices rebound, buyers started to enter the real estate market and release their purchase power, some might even willing to purchase in advance. On the other hand, with the lowered interest rates and reduced purchase cost of houses, the economic burden of home buyers was slightly eased; the purchase will of some people were enhanced and thus their rigid demands were released. Third, the turnover amount and prices of houses were slightly increased after the differentiation of market expectation and the partial release of rigid demands.
(See contents listed above on 2013 Green Book of Housing Market-Annual Report on Development of Housing Market in China (2012-2013), Page 11-14, Social Sciences Academic Press, published in December 2012)
The 2013 Green Book of Housing Market released by CASS anticipates that:
The recent general turning trends of housing market indicators should be wary of since the real estate market might face the risks of overall rebound and partial collapse in the future; in 2013, the central government’ regulatory over the real estate market would face many unfavorable factors
The Green Book of Housing Market points out that since the current trends of the real estate market is not formed within the market mechanism, nor is it a rational result of powerful market forces, thus recent general turning trends of housing market indicators should be wary of. The real estate market might face the risks of overall rebound and partial collapse in the fourth quarter of 2012 and in 2013 that: housing prices in the majority of cities would continue to increase rapidly which might force some cities to collapse; prices of most of the construction project would continue to increase which might cause some construction projects to be unfinished. For most cities, if the housing prices remain the modestly increasing trend and the central government fails to take any effective measures, together with the disguised relaxation methods adopted by the local government, the market expectations might be changed and thus lead to the risks of another round of skyrocketing price increase. However, for cities with particularly severe economy, due to the withdraw of investment and speculation, the bubble would burst and cause the real estate market to collapse; for small or medium-sized property enterprises or construction enterprises, due to the funding constraints or capital chain rupture, unfinished projects or bankruptcy of the enterprises might be caused as a result, thus created certain financial risks.
In 2013, the central government’ regulatory over the real estate market would face many unfavorable factors in terms of the main market players and the policy:
1. The global economy sustains downturn.
The global economy sustains slow recovery or downturn. The export situation of China is not optimistic due to the uncertainty in external demands, which may hinder China’s economy for the better. On the other hand, to stimulate economic growth, many countries have introduced loose monetary policies since the potential pressure brought by the imported inflation influences the operation of domestic expansionary monetary policy. In addition, the international capitals are still watching for their chances in China’s real estate market.
2. The domestic economic is underpowered. Despite the occurrence of some positive signs, the macroeconomic recovery sees no stability; in addition to governmental investment, impetus like growth of consumer demands and private investment are still insufficient; if major difficulties arise in external demands, the governmental investment might lack of the long-term sustainability and thus cause max iterations to occur in the macroeconomic and might in turn affect the regulation of real estate market.
3. Local governments experience fiscal tightening. Macro-control has been going on for two years, on the one hand, the transfer fee of land change on the local government level have fallen sharply; on the other hand, the construction of indemnificatory housing requires large amount of substantial financial expenses and in addition, debt issued by financing vehicles have gradually expired, all these factors makes the financial situation of local governments to be more tightened and thus greater financial risks are hidden in this situation.
4. Situations of different places differ in thousands of ways. Different cities and different enterprises might face by different circumstances. In this situation, the regulatory policy that provides differential treatments is hard to form and lacks of practical operability; but it is also difficult for the uniformed regulatory policy to have targeted effects.
5. The price rises and the trading volume falls in the real estate market. If the special nature of house as investment goods is taken into account, in the assumption of optimistic long-term expectations, the real estate market may witness increases in both price and trading volume or decreases in both price and trading volume, which thereby increase the difficulty to achieve the control objectives of increase in trading volume and a drop in price.
6. The regulatory mechanism is not sound enough. The establishment of a regulatory consultation system of seven ministries is not enough since this system is not perfect and sound as expected. Therefore, the current regulation lacks of perspectiveness, pertinence and timeliness.
The 2013 Green Book of Housing Market released by CASS anticipates that:
If the policies taken in the fourth quarter and 2013 turn out to be sound and powerful,
It is possible for the housing market to achieve steady progress, namely the “overall stability with minor fluctuations”
The Green Book of Housing Market points out that there are three possible trends in the fourth quarter of 2012 and 2013, namely: First, if the policies turn out to be improper and lacking in strengthen, overall rebounds and partial collapse may occur in the housing market; Second, if the policies turn out to be to be sound and powerful, it is possible for the housing market to achieve steady progress, namely the “overall stability with minor fluctuations”; if the policies turn out to be very powerful and very proper, the real estate market may achieve rational return. However, the second prediction has the largest possibility to occur. Specific performance of it lies in: the price and trading volume of the housing market keep rising, though the rate of increase is lower than the economic growth and per capita income growth. From a quarterly perspective, the fourth quarter of 2012 and the first quarter of 2013 continued to witness modestly increase and the government took measures after the second quarter of 2013, which cooled down the housing market.
1. The macro environment created conditions for sustainable enforcement of strict regulation over real estate market. First, the economic transformation requires the government to actively lower the excessive economic growth to save enough space for the structural adjustment; the future economic growth goal will be remained at the level of 7%; second, since the macroeconomic maintains stability in enterprises and their developments are for the better, contradictions between macro-control and regulation of real estate are weakened; third, macroeconomic managed to get rid of its over dependence on real estate market. Consumer demand has initially become the first driver of economic growth; resident income continues to grow; although the current growth rates of automotive, sports and entertainment, home appliances and other industries are low, they have great growth potential in the future; despite the prediction that the global economic growth rate will fall back in the future and the situation for exports may likely to get worse, exports remain as competitive forces; emerging strategic industries and investment of SMEs have great growth potential, current investments in transportation, storage and postal industry are relatively but have great potential in the future.
2. Short-term fundamentals: phased release of supply and demand and weakened contradictions between supply and demand. On the one hand, the market expectation differentiation allows the partial release of rigid demands that has accumulated over the last two years and will reduce the pressure and volatility of real needs by further release of the demands. The marketing strategy of “lowered the price for more trading volume” previously adopted enabled the developers to solve the problem of a shortage of funds and increase their confidence in the purchase and development of lands. Third, the construction of indemnificatory housing is effectively playing its role to benefit the people, expand domestic demands, adjust structure, stable housing prices and promote development.
3. In the long run: there is huge potential to develop housing market. China is in the stage of accelerated urbanization, with the continuous improvement of resident income, the rigid demands and improvement demands in housing market is still relatively large; the long-term growth of Chinese economy is better than the developed economies; the appreciation of the RMB will continue in several years in the future, thus potential of real estate investment demands is still very large.
(See contents listed above on 2013 Green Book of Housing Market-Annual Report on Development of Housing Market in China (2012-2013), Page 15-16, Social Sciences Academic Press, published in December 2012)
The 2013 Green Book of Housing Market released by CASS points out that:
Regulation in 2013 is the game of housing market players and the central government, which should reaffirm strict regulation and impose specific regulatory policies targeting reserve without delay.
The Green Book of Housing Market points out that regulation in 2013 will continue to reflect the market games between the main market players and the central regulation; in which the main market players may be more sensitive to the central regulation policies; but the central government has larger initiatives and leeway. To solve the above problems, the objectives and tasks are: by strengthening and improving the regulatory policies to achieve the prime goal of achieve rational return of real estate market; to achieve the medium goal of achieve steady progress and stability of real estate market or avoid the worst situation and prevent the overall rebound and partial collapse in real estate market. Their specific performances lie in: in terms of prices: to ensure stability in price and strike for rational return; housing price increase in cities with lower incomes shall not exceed the economic growth; the housing price increase in cities with higher incomes shall be reduced; in terms of marketing: strike for steady growth; especially the increase in the ratio between indemnificatory housing and common commercial housing; in terms of investment, to generally slow down the overall investment and rapidly increase the investment in indemnificatory housing and common commercial housing and to steady and rapid increase the land acquisition and housing constructions. Therefore, we should adhere to the general principles:
First, perseverance and unwavering determination shall be insisted. Regulation of real estate market is a protracted war thus it is not possible to win it by on battle. The restrain of speculative demand and investment demand of real estate market shall be made in to a long-term policy. Thus disguised relaxed regulatory policies shall be prevented in order to promote the rational return of housing market. Second, making overall plans and takes all factors into consideration and deal with each case on its merits. We shall reduce the housing price while maintaining steady growth and achieve mutual promotion between these two factors. On the one hand, in the execution of fine-tuning macroeconomic policies, measures aim to orient and isolate shall be taken to ensure the real estate regulation policy remains unchanged or involve in no reverse change; on the other hand, to further strengthen measures that taken both goals into account and aim to achieve both goals. Third, take the discretionary approaches and initiatives to actively solve problems. The “outcrop hit” strategy in the past shall be changed. We shall pay close attention to the changes of situation and expectation and eliminate the unfavorable signs in their cradles by proactive and timely introduction and adjustment of regulatory policies and advertise them through propaganda; and mobilize parties involved in the market game to act towards the direction of central regulation through the active guidance of expectations. Fourth, combine the long-term goals with the short-term goals and resolve the current problems and eliminate the root causes. The good timing of current regulation shall be master in the selection of breakthroughs; we shall deepen comprehensive reform of the housing system since the timely introduction of it can both satisfy the urgent needs and protect the long-term health insurance policy regime.
To prevent the overall rebound and partial collapse in real estate market, to strike for its rational return and to achieve its steady progress and stability, the State Council shall unswervingly continue to reiterate the strict regulation over the real estate market based on the research of the ever changing realities in current and future housing market by timely introduction of targeted relevant reserve regulatory policies. Specific recommendations should be taken are as follows: in terms of administrative system, the regulative departments and coordination mechanisms of regulation shall be perfected; the accountability system of regulatory goals shall be implemented; in terms of demand management, house purchase quota policy shall be refined and become more precise; various attempts and behaviors that intend to change the policy shall be prevented and corrected; in terms of expectations management, the spokesperson system shall be improved and transmission and sensationalization of rumors related to real estate market shall be strictly punished; in terms of monetary policy, advance sale of property under construction shall be cancelled and the differentiation of monetary policy shall be improved; in terms of tax policy, pilot project of real estate tax expansion shall be taken as the breakthrough for the stabilization of current expectations and the deepened comprehensive reform of housing; in terms of housing security, the measures that aim to secure the indemnificatory housing projects shall be completed and the implementation indemnificatory housing projects shall be explored; in terms of house renting market, the renting market shall be regulated and improved; in terms of land policy, land regulation goals shall be established, the establishment of mechanisms aim to curb the over speeded increase of land price shall be explored; in terms of space management, different regulatory measures shall be adopted based on the unique conditions of each city; since some cities might face the risk of real estate bubble burst, the emergency mechanisms of real estate regulation shall be established to prevent the market from “hard landing”.
(See contents listed above on 2013 Green Book of Housing Market-Annual Report on Development of Housing Market in China (2012-2013), Page 18-20, Social Sciences Academic Press, published in December 2012)