Understanding Finance from scratch

Chapter 45 Under the control of the real estate market, whether the housing price is going to the left or to the right—Finance that needs to be learned when paying attention to the direction of real estate (2)
Since 1978, about 1500 million rural residents in our country have transformed into urban residents every year, forming a continuously strong demand for urban real estate.In addition, a large number of rural surplus labor force poured into the city.According to the monitoring survey of migrant workers in China, there were 2009 million migrant workers nationwide in 1.4533.Although they have not really become urban residents, they live in cities all year round.

Some people think that urbanization is also a very important driving factor in the rising housing prices.Is this view correct?Can urbanization pay for high house prices?

The issue of housing prices has aroused more discussions and concerns.Some people believe that urbanization is an important reason for boosting housing prices.However, some people believe that urbanization is an inevitable trend in the development of our country, and the rise in housing prices cannot be "blamed" on it.So, what is the relationship between urbanization and housing prices?Does urbanization necessarily lead to rising house prices?

We all know that China is a traditional agricultural country, and it is only three to forty years before China is moving towards an industrialized country. The urbanization that accompanies industrialization has always been a long way to go. It is very complicated and needs to solve many pre-requisites. Sexual, concomitant and contradictory tasks.Turning farmland into construction sites and peasants into citizens has completed an identity replacement, but it is only a small beginning of the urbanization process, and it is still in the nominal urbanization stage.

Some people believe that urbanization is the driving force behind rising housing prices. After all, from a theoretical point of view, urbanization has a certain positive effect on real estate price increases.The econometric analysis of the urbanization level and the time series data of commercial housing sales prices also shows that there is a long-term equilibrium relationship between the urbanization level and real estate prices.It can be seen that in the long run, urbanization will indeed drive up real estate prices.

First, urbanization increases the demand for real estate, driving up prices.In the process of urbanization, a large number of rural residents have transformed into urban residents through channels such as farmland requisition, children's admission to college, and house purchase, which has driven considerable demand for urban housing.Urbanization has also brought about a large demand for supporting commercial housing and service housing, for example, housing for offices, institutions, social services, hospitals, schools, etc. has increased rapidly.Along with the comprehensive effect of the above factors in the process of urbanization, the total demand for urban real estate will inevitably expand continuously.This, to a certain extent, has driven real estate prices to continue to rise.Such rises can be referred to as demand-pull.

Second, rapid urbanization will lead to tight land use in cities and towns, driving up real estate prices.Urbanization will inevitably produce a large number of urban infrastructure construction requirements, thus occupying a large number of land resources, and my country's urbanization has a certain degree of extensive characteristics, and land consumption is more prominent. From 1996 to 2008, my country's urban population grew at an average annual rate of 4.1%, and the urban construction land area increased at an average annual rate of 6.2%. The rate of land use exceeded the growth rate of the urban population.Due to the limited amount of urban land resources, a large demand for land will naturally drive up land prices.Rising land prices will also have a linkage effect, causing housing prices to rise accordingly. This type of increase can be called cost-push.

The above view seems well-founded and plausible, but is it really the case?Is it possible to attribute the current high housing prices mainly to rapid urbanization?
I'm afraid the answer is not that simple.Urbanization has a promotion effect on real estate prices from two aspects of supply and demand, but this effect is mainly long-term and relatively stable.In the past two years, my country's housing prices have risen rapidly, which is obviously not just the effect of urbanization.

We must admit that the urbanization rate has been very fast in the past two years.According to the data released by the National Bureau of Statistics, my country's urbanization rate has reached 2009% in 45 and is growing at a rate of 1% per year, which means that nearly 1300 million rural population will enter the city every year.Indeed, there is an urgent need for housing after farmers enter the city, and whether migrant workers can achieve "home ownership" is a basic condition for whether they can successfully transform from farmers to citizens.However, judging from the actual situation of my country's urban commercial housing market, migrant workers are not and will not be the main demanders of this market.

Although the income level of migrant workers has increased to some extent in recent years due to rising labor costs, most migrant workers are "migrant workers", and their jobs are mostly simple labor with low technical content, and their monthly income is between 1500 and 2000 yuan. More common, reaching 3000 yuan or even higher are few in number.After deducting the necessary living costs, family support expenses and children's education expenses, there is little or no surplus left.

Looking at the housing prices of some big cities, the price of commercial housing can easily be tens of thousands or even tens of thousands of yuan per square meter, and some prefecture-level cities are also 6000 to [-] yuan per square meter.Under the abnormally high housing price level, even white-collar workers and even middle-income earners in big cities cannot afford houses. Isn’t it too difficult for migrant workers to buy houses?Their weak purchasing power determines that they cannot become buyers of urban commercial housing.Naturally, the urbanization driven by the migration of migrant workers has no necessary and essential internal connection with the high housing prices of urban commercial housing.It is unreasonable to affirm the rationality and sustainability of high housing prices based solely on the acceleration of my country's urbanization process, ignoring the actual purchasing power of migrant workers and without carefully analyzing the housing demand structure that is compatible with the purchasing power of migrant workers.

Urbanization may have some impact on housing price increases, but urbanization cannot be regarded as a rigid demand to support high housing prices. After all, the housing needs of migrant workers are not equal to their housing needs.Migrant workers need housing and have the ability to buy housing, this is not a concept at all.The former is a good subjective will, while the latter is a real need.

Renminbi Appreciation: Global Capital Stirs China's Property Market
According to the central bank's data, the balance of foreign exchange reserves climbed to US$2009 billion at the end of September 9, a year-on-year increase of 22726%, a new high.In the third quarter, foreign exchange reserves increased by US$19.26 billion, of which US$1410 billion increased in September, while the increase in foreign exchange reserves in the first quarter was only US$9 billion.According to CICC estimates, excluding investment income and foreign exchange gains and losses, and taking into account the outflow of funds caused by foreign investment, the unexplained capital inflow in the third quarter may exceed 618 billion US dollars.

The inexplicable capital here is commonly known as hot money, and their influx will stir up China's property market and bring greater pressure to China's property market.So, why do these hot money want to deploy in China?How will China's property market be affected?

The 500 billion US dollars can be roughly classified as hot money or hot money.The goal of their influx into the mainland is very clear: to benefit from investing in assets and equity, and most of them are short-term operations. The stock market and property market are the two main areas.From the analysis of the real estate market alone, the hot money entering is mainly various funds. These funds are raised overseas and operated by international financial institutions, including well-known investment banks such as Morgan Stanley, Citibank, and UBS, as well as non-famous institutions in the Middle East and Southeast Asia; Real estate investment, some are diversified investments, the pursuit of absolute rate of return is their bounden duty.Against the backdrop of rising domestic inflation expectations in China, increasing pressure on the appreciation of the renminbi, and the second introduction of the "quantitative easing" monetary policy by the United States, "hot money" has become a "monster" that fuels the flames of many emerging markets, including China.

In fact, hot money has been tossed several times in the Mainland in recent years.Roughly since 2004, the scale of overseas fund acquisitions of mature properties and retail real estate speculation has grown rapidly, contributing to the upsurge in housing prices in first-tier cities.In order to curb the soaring housing prices, in 2006 the state promulgated the "No. 171 Document" to restrict the purchase of houses by foreign investors. As a result, the proportion of real estate speculation dropped significantly, and some funds were transferred to the equity investment fields of various real estate companies and projects.However, the hot money flowing into China from overseas has not stopped because of the Chinese government's restrictions on foreign real estate speculation.Some foreign capital is still taking advantage of policy gaps to enter China's property market.Relevant experts pointed out that if hot money continues to flow in large quantities, it will cause huge troubles to China's monetary policy operations and intensify the upward pressure on domestic housing prices.

A research report by the National Bureau of Statistics pointed out that since February 2006, hot money betting on the appreciation of the renminbi has made a comeback.So, where will the vane of these hot money flow point?Stock market futures, currency exchange rates, or real estate?For the cross-border capital that is still betting on the appreciation of the renminbi, the biggest possibility is real estate.It can be said that under the background that the domestic financial market has not yet been liberalized, the real estate industry with stable and high returns has naturally become an investment platform for foreign capital.

What role and how much foreign capital played in pushing up China's housing prices really needs quantitative analysis and should not be evaluated rashly. However, it is an indisputable fact that foreign capital is keen to enter the property market and pursue profits.According to Marx, if there is 100% profit, capital will take risks; if there is 200% profit, capital will defy the law; if there is 300% profit, capital will trample on everything in the world.

After overseas hot money enters China, it will inevitably push up stock prices and house prices.Its mechanism of action can be divided into two categories: direct and indirect.The direct effect is simple, an increase in demand naturally raises the price of the asset.In the real estate market, overseas funds prefer to buy high-end properties. For example, since the beginning of this year, luxury properties in first-tier cities have been hot, of which Hong Kong and Taiwan customers account for a considerable proportion. Individual luxury properties in Shanghai are promoted in Hong Kong, and the degree of popularity is unexpected; In 2007 or 2010, the proportion of investment speculation in the real estate market ranked first in the country.

The indirect effect is to create liquidity.There are two main sources of my country's excess liquidity: First, the excessive credit volume. For example, the new RMB loans in the first three quarters of this year reached 8.67 trillion yuan, while in 2006-2008 they were only 3.18 trillion yuan and 3.63 trillion yuan respectively. , 4.91 trillion yuan.The second is that foreign exchange reserves have increased too fast. To increase one dollar of foreign exchange reserves, equivalent RMB must be issued. In the third quarter, foreign exchange reserves increased by 1410 billion US dollars, corresponding to an increase of 9630 billion yuan.In 2007, the country's foreign exchange reserves increased by US$4619 billion, corresponding to an increase of RMB33740 billion.

In fact, the problem of hot money pushing up housing prices is not limited to China. In order to cool down the hot money for real estate speculation, Australia stipulates that foreigners can only buy new houses and cannot buy second-hand houses.For another example, my country’s Hong Kong recently launched a lethal weapon on the local property market: increasing the “additional stamp duty”. It is said that 4 days after the launch of the new policy, it successfully froze the trend of property speculation in Hong Kong.

In short, the road to regulation and control of the real estate market is full of obstacles, not only to deal with speculation, but also to face land finance.In particular, domestic and foreign hot money flowing into the property market has become the biggest "blocker" in the current regulation and control. How to repel this "blocker" is an urgent issue that needs to be considered.

(End of this chapter)