What’s going on with Beijing’s real estate market?

In China, any issue cannot be discussed without "national conditions with Chinese characteristics." So, let us explore the causes and trends of China's property market bubble based on the national conditions.

First, the "baby boom" and university enrollment expansion in the past two decades have created a "loyal customer base" in China's real estate market, which also determines the "short-lived" characteristics of China's real estate market.

"Market demand" is one of the most critical starting points for analyzing any economic issue. So, where does the strong demand in China's real estate market come from? Some people believe that China's urbanization process will inevitably drive hundreds of millions of farmers to move into cities, thus making the market demand for Chinese real estate continue to be strong. This is exactly what many Chinese mainstream economists have concluded after conducting a large amount of data surveys. in conclusion. However, being powerful in theory does not mean that it is feasible in reality. China's urbanization is not as "natural" and the engine of soaring housing prices as experts think.

First of all, China’s urbanization has a long way to go, and it is impossible to copy the European, American and Japanese models. China is a society with a "dual structure" between urban and rural areas. The government divides Chinese people into "urbanites" and "countrysiders" through a strict household registration system, which is fundamentally different from Western countries. The long-standing troubles of "vested interests" and "social security" have resulted in China's long-established household registration reform still making no substantial progress after eight years of implementation, creating huge obstacles for the urbanization of the agricultural population. Hundreds of millions of farmers who have moved to cities have Instead of successfully becoming urbanites, they became "new urban refugees", leading to a sharp deterioration in social security. The "lag" of the political system has created the "illusion of urbanization" in China. China has a population of 1.4 billion, and urbanizing 70% of the population far exceeds the capacity of China and the world's resources. Some experts have made interesting statistics: If all Chinese people reach the living standards of the American people, then China's GDP will be at least 50 times that of the United States. This is obviously impossible. "Resource bottlenecks" have become the "unbearable burden" of China's urbanization. Don’t just look at the high-consumption life of Europe, the United States and Japan. In fact, they are based on the “plunder” of natural resources and cheap labor in third world countries around the world. Japan has a forest coverage rate of 67%, but it strictly controls forestry logging. Instead, it cuts down a large number of tropical rainforests from Southeast Asia and imports disposable wooden chopsticks from China cheaply. The United States has relocated a large number of factories to China in recent years, but through its investment in technology and brands The monopoly captures most of the profits. According to reports: For an American brand iPod machine made in China, the American company's profit is 62 US dollars, while the Chinese processing factory only received 4 US dollars in processing fees. A Chinese named "Xie Guozhong" said that "China has only obtained a few bread crumbs in international exchanges", which allows us to see the sadness of the Chinese model; the American "Wall Street Journal" published an article "We Think, They The article "Sweat" shows Americans' sense of superiority; Chinese media frequently publish articles such as "China's prices are posted around the world, Chinese people support Americans for their retirement", triggering the whole people's reflection on the "China model"; perhaps because of this , China’s government learned from the experience and put forward the strategic concept of “building an innovative country”.

In short, China's hundreds of millions of cheap laborers, who are at the "bottom of the food chain" of economic globalization, want to "share the global economic feast" with the economic giants, which is just "painting the pie to fill the pie." In the "lifetime" of our generation, the Chinese people will not be able to reach the level of development of Europe, the United States and Japan. Enthusiasm, diligence and the courage of the "Economic Great Leap Forward" alone cannot complete the "urbanization" of rebuilding the market economic system and improving the quality of the entire people. task.

Secondly, China’s backward basic education in the 50 years since the founding of the People’s Republic of China has forced China’s urbanization to pay a heavy price of “time delay”. The reason why Japan has been able to transform from a small country with poor resources into an economic powerhouse is inseparable from its "national policy of emphasizing education" that began during the Meiji Restoration. In socialist China, although slogans such as "No matter how hard it is, the children must not suffer; no matter how poor, the education must not be poor" can be seen everywhere, investment in basic education has always been among the "backward" in the world. We cannot imagine that hundreds of millions of farmers with poor families and poor knowledge can transform themselves overnight, join the ranks of white-collar workers, and have the ability to buy houses just because they move to the city. The reality is that the vast majority of farmers who move to cities, including even “upper-class migrant workers” such as foreman contractors, cannot afford the high housing prices in cities.

Although they do hope to own a house of their own in the city, and although this class has a large population, due to their low actual income and expected income, it is obviously not feasible to attribute them to the huge effective demand of the Chinese real estate market. People are convinced.

So, where does the real demand that has led to this round of rising housing prices come from?

Statistics show that from 1962 to 1982, China had the largest baby boom in the past 20 years, with a cumulative population of more than 450 million born. All of these people have now entered the employment period and are buying houses. Demand is strong. But the real effective demand lies in the "college enrollment expansion" policy launched by Zhu Rongji's government in 1998. Faced with huge employment pressure at that time, Zhu Rongji vigorously promoted "college enrollment expansion" out of strategic considerations of "reducing the unemployment pressure on the whole society and allowing young people to return to colleges and universities." Obviously, this is just a "stop-gap measure" and the temporary relief of employment pressure will inevitably erupt on a larger scale four years later. In 2002, the first batch of college students graduated from the expanded enrollment. Most of these young intellectuals who had left their hometowns had higher incomes and were unwilling to return to backward rural areas. The rigid household registration system makes them lack a "sense of belonging" in the city. Without a "hukou", they cannot register their marriage locally, cannot fairly let their children enjoy local education resources, and cannot even get a license plate to buy a bicycle. This group of helpless college students can only realize their most basic dreams in life by buying houses. They are the most rigid demand in the Chinese real estate market.

However, we also have to note that as the latest people born during the "baby boom" period have entered the employment, marriage, and home-buying period, then this wave of growth caused by the "baby boom" and "enrollment expansion" The "housing tide" partially caused by the "tide" has also reached the time of "ebbing". According to China's census data, from 1964 to 1982, China's annual net population increase was approximately 17 million; from 1982 to 1990, China's annual net population increase was approximately 15 million; from 1990 to 2000, China's annual net population increase was approximately 12 million ; From 2000 to 2005, China’s annual net population increase was approximately 8 million. With the decrease in the number of newborns and the aging of the baby boom population, the aging of Chinese society has become irreversible. The number of people over 50 years old will reach approximately 600 million after 2020, and the elderly will account for 40% of the total population by then. above. This is definitely not good news for China’s real estate market. As the young and middle-aged population continues to shrink, can China’s economy, which is based on hundreds of millions of ultra-cheap labor forces, really be able to maintain the myth of undefeated real estate for a long time? The increasing number of elderly people do not have much strong motivation to buy houses. The fewer and fewer young people are facing the heavy pressure of "two young people supporting four elderly people". How "rigid" is their demand for house purchasing? "? It deserves deep suspicion. Friends who buy a house for retirement may face the dilemma of long-term steady depreciation of property value after they enter old age, and the rental market is also facing a downward trend due to the diversion of floating population in countless small and medium-sized cities. The ancients said: Things in the world are unpredictable, so think twice before acting.

The proverb goes: Blessings never come in pairs, and misfortunes never come alone. The "aging wave" has just surged, and the "unemployment wave" has followed closely. It is true that "the waves behind the Yangtze River push the waves ahead, and the waves in front die on the beach." Following the "two unemployment waves" of "educated youth returning home" and "state-owned enterprise workers being laid off", the "third wave of unemployment" caused by overcapacity and industrial upgrading is also coming. You can pay attention to the recent major media. The main subjects of this wave of unemployment will no longer be state-owned enterprise employees and educated youth who have returned to their hometowns, but will be young white-collar workers with good educational backgrounds. The exponential growth of college graduates is facing enterprises with declining profits, which has led to a decline in starting salaries for graduates year after year. This is "very abnormal" in the context of China's "comprehensive and rapid rise in prices" . How can one afford a "significantly reduced commercial house" with a "shrunken salary"? If China's economy cannot make the "most rigid home buyers" like foreign white-collar workers wealthy, China's housing prices will inevitably turn downward.

Second, China’s failed housing market reform has provided an institutional guarantee for the chaos in China’s real estate market. This failed system cannot support the long-term prosperity of China’s real estate market.

We say that the welfare housing allocation system under the planned economy is bad because it cannot achieve the optimal allocation of resources and has caused housing tension and unfair distribution in the whole society. Therefore, China go- vern-ment's vigorous promotion of housing market reform is an important step in China's economic marketization strategy in the long run. Judging from the situation at that time, it was also the government's eagerness to use the real estate market to kick-start the country's weak "domestic demand" and stimulate the economy. increase. Although the idea is good, the Chinese government's "lack of progress" in political reform has led to the tragic fate of Chinese real estate that "can guess the beginning, but not the ending." It should be said that until today, China still has not established a truly standardized and market-oriented real estate market. Moreover, in terms of the ambiguous attitude of the government towards its own interests, we cannot expect that China’s real estate market will improve in the short term. The market can really be established. Why do you say that?

The so-called market economy has two key "necessary conditions", one is the independence of ownership, and the other is the equality of the status of both parties to the transaction; because only with "independence of ownership" can both parties in the market carry out exchanges. Before reform and opening up, all property in China was public, so there was no exchange. In addition, if there is no equality in the status of both parties to the transaction, one party can force the other party to accept an unfair price, and the market will not be able to optimize the allocation of resources. Therefore, without equality in the status of both parties to the transaction, there will be no market economy. If we look at the Chinese real estate market, neither of these two conditions have been achieved.

Although China’s government announced the abolition of the welfare housing allocation system in 1998, land, as the most critical factor in the real estate industry, has always been firmly controlled by governments at all levels. Whether the land can be developed, which areas cannot be developed, and the amount of development each year are all decided by the government. There is no independence of land ownership. Although the home buyer has purchased the house, the land under the house is still owned by the government. In other words, you do not own the house you bought. "If the skin is gone, the hair will be attached," which brings huge "uncertainty risks" to home buyers. For example, the useful life of residential land in China is 70 years, but how likely is it that you think you can own it within 70 years? You can go to the street and see how many 70-year-old houses (except cultural relics) are still there that have not been demolished? The reality is that with the local government’s drive to “manage the city”, many residential buildings in the 1980s (used only for more than 20 years) are already facing the fate of being demolished. It is indeed rare to survive 70 years. . Some people may ask: I spent my whole life's money to buy the house, and it has three legal certificates. How can I demolish it just as I say? Indeed, the house is yours, but the house is not built in the air. The land it depends on cannot be bought no matter how much money you spend. Every inch of land in China belongs to the state (managed by local governments at all levels). to exercise ownership rights on behalf of others). Since the land belongs to the state, when the government wants to expropriate the land occupied by your family, it is natural that it is consistent, reasonable and legal. The fact that the public green space in the residential area of ??Renhe Jiayuan in Nanjing was violently and forcibly expropriated in 2004 and 2005 is a good proof that although you have legal ownership of the property, the government demolishes your house. It's also legal. Isn't this like a paradox? In 1991, Beijing Beichen Group developed a villa community called "Guantianxia" on the central axis of Beijing. The selling price of more than 2,400 US dollars per square meter was really a "sky-high price" at the time. When several hundred households with considerable social status Only ten years after influential wealthy people moved into their homes, the main stadium for the Olympic Games was demolished "without consultation" because it was located here. In 2005, in Nanjing, the ancient capital of the Six Dynasties, an event that aroused great controversy among citizens also occurred, namely the news that the Shengshi Huating would be demolished: In 1996, the Shengshi Huating, which cost about 6,000 yuan/square meter, formed an early wealthy residence in Nanjing. Human area.

However, these celebrities with wealth, status, social influence, and legal property rights to their houses still face the embarrassing situation of not being able to protect their private property, and the reason is so funny that "the government wants to build a prosperous palace" "A commercial leisure and entertainment zone" and brazenly claimed that it was to "protect Xuanwu Lake." In recent years, most of the violent incidents caused by demolitions across the country are related to the absurd system of separation of house property rights and land ownership.

In fact, from the cases listed above, we can see that in China’s so-called “real estate market”, the two parties to the transaction are seriously unequal. The seller is a developer with billions of wealth. The developer's capital and the power of the government have formed an alliance under the consciousness of interests. Its strong position is self-evident. As the other party to the transaction, ordinary people not only have no land ownership, no say in demolition, no right to participate in the pricing of commercial housing, they cannot even obtain real housing sales information. It is clearly deceiving customers, but it claims to be "sales control"; it is clearly condoning housing prices, but it claims to be a "market economy, and the government cannot interfere with pricing"; it is obviously a market support, but it claims to protect the majority of people who own homes. Assets have not shrunk; they are clearly building self-built houses aggressively, but they use "policy vacuum" as an excuse to do everything possible to hinder people's efforts to build self-built houses. A so-called market economy without "fairness" not only fails to optimize resource allocation, but is even worse than a planned economy. In fact, this kind of "economic monster" that combines speculative capital and power to monopolize will not only harm the interests of ordinary people, but even the wealthy class will not be immune. The recently reported "sky-high medical expenses incident" in Harbin and the "prominent demolition incident of Shengshi Huating" in Nanjing are both cases of targeting the wealthy.

So, how did this failed system lead to the short-term boom in China’s property market? And how long can it last?

After China abolished welfare housing distribution in 1998, in addition to government agencies and "units within the system" (Liyan, universities, etc.) secretly constructing welfare distribution for self-built housing, most Ordinary people are forced to solve their housing problems only through "market methods." Anyone in old Nanjing can experience that most of the houses in the planned economy era have monotonous and unreasonable layouts, no decent community landscape, and backward planning. This has made people's desire to improve their living conditions stronger than ever. On the other hand, the long-term welfare housing distribution has accumulated a large number of effective demands for people with limited living space due to insufficient qualifications. These "compensatory housing needs" caused by institutional reasons broke out intensively after 2002, which is another important reason for the soaring housing prices in China. However, this demand comes and goes quickly and cannot last for a long time. It should be said that the housing purchase wave in the past two or three years has digested most of the effective components of these "compensatory demands" (mainly targeted at developed coastal areas, with a slight delay in the central and western regions). It is expected that this demand will support the second wave of China's real estate buildings. Ten years of rapid progress is obviously a pipe dream.

Third, China’s unbalanced economic development and chaos in the financial market have provided sufficient funds for China’s real estate market.

Say one thousand, say ten thousand. Without sufficient funds, China's real estate market cannot be so "over-prosperous", so where does the money come from? Why are you willing to invest so much money in the real estate market?

First of all, the rapid development of China's economy has led to a huge increase in currency issuance, creating an absolutely huge number of "first-rich classes" (the relative proportion is not high). China's "first rich class" has very Chinese characteristics. The vast majority are the power class and the capital class. The majority of people who truly rely on so-called "honest labor" to legally get rich are not the majority. The ratio of government officials to citizens in China is 1:28. The civil servant class, which accounts for 1/28 of China's population, can be said to be the largest wealthy class in China. In the past few years, complaints about low wages among civil servants were common, and there were constant news about civil servants resigning and going to work. But almost overnight, civil servants became the "most sought-after" profession. Last year, the spectacular scene of 1 million people vying for the civil service exam is probably still fresh in everyone's memory! Why do people like being civil servants so much? Recently, I saw the salary slip of a 24-year-old female civil servant in Shanghai on the Internet. Although this little girl who just graduated from college has a monthly salary of only more than 1,200 yuan (not reaching the personal income tax threshold), it is strange that she earns 7,788 yuan a year. , the income received was as high as more than 90,000 yuan, an average of more than 8,000 yuan per month. With complete benefits and security benefits, it is equivalent to a monthly salary of more than 9,000 yuan.

Having such an income just after graduation is amazing enough even in a first-tier city like Shanghai. The second "first rich class" is the middle and high-level cadres of monopoly and state-owned enterprises. One of the more famous posts on the Internet: I dare not have a girlfriend with an annual salary of 130,000 yuan. It tells the story of a graduate student working at the Nanjing Power Supply Bureau with an annual salary of 130,000 yuan, but he felt the pressure of survival. From this, we can see how profitable these monopoly sectors are. I don’t need to say whether this kind of salary that is divorced from the level of socio-economic development is the result of survival of the fittest in the market, or is it the blessing of the umbrella of power! Let’s talk about state-owned enterprises. China has accumulated trillions of state-owned assets in more than 50 years of development. However, with the MBO reform of state-owned enterprises, a large number of state-owned enterprises have been sold off. So many assets have been transferred from "state-owned enterprises" to "state-owned enterprises" in such a short period of time. "Owned by the whole people" has become the "sacred and inviolable private property" of some people. How can it not cause resentment among the people and lead to the polarization between rich and poor? This is the fundamental reason why the people support "Lang Xianping". What is even more ironic is that when the central government realized that there were problems with the auction of state-owned assets, it found that the state-owned assets had basically been sold out. In 2005, this unhealthy trend of dividing state-owned assets spread to large and medium-sized state-owned enterprises. Take a large state-owned enterprise in central Shandong as an example. For front-line middle-level leaders such as workshop directors and factory directors, the maximum legal annual salary is even as high as 200,000 yuan. Even a team leader who graduated from a technical school can earn more than 5,000 yuan in bonus income per month as long as he works in a key workshop. , while the monthly salary of ordinary workers is only more than 1,000 yuan. This kind of huge unfair distribution is so universal that the central government issued a document in early 2006 calling for curbing the excessive growth of management income of state-owned enterprises. However, it is obvious that the central government, which "policies cannot go out of Zhongnanhai," is unable to control it. This is a systematic and legalized way of dividing state-owned assets. There is also a wealthy class that cannot be ignored, which is the "capital comprador class". For example, Mr. Sbotman, who is very famous in the teahouse on Huaqiao Road in Nanjing, is a typical representative of this class. Foreigners are making a lot of money from Chinese consumers, allowing a large number of workers to sell their labor at low prices. But at the same time, they have also created a large number of wealthy foreign compradors, who have achieved their own "success" by leveraging the excess profits of multinational groups.

Since there are so many wealthy people in the society, in China, which has a strong tradition of "buying a house and acquiring land", what can we buy if we don't buy a house? What's more, house prices are rising happily.

Secondly, China's "dual society" structure that separates urban and rural areas has fundamentally caused extreme imbalances in regional development and prompted excessive concentration of housing purchase funds. The income of many people in Shanghai in the east has kept pace with international standards, while a large number of rural areas in the central and western regions still work in the fields for an income of 500 yuan per month, forming a "marathon social structure." As the saying goes: Water flows to lower places, and people go to higher places. Unbalanced economic development naturally leads to the concentration of the "first rich class" in poor areas to developed areas, and the concentration of the "first rich class" in rural areas to cities. The number of this group cannot be underestimated. The behavior of Shanxi's newly wealthy coal bosses speculating in real estate in Beijing and Shanghai is an extreme reaction to this trend.

Thirdly, it is China’s uncertain outlook caused by long-term mild inflation and a rotten stock market that has led to the influx of funds into the property market. The author has met a middle-aged man who is engaged in the medicinal materials business in Nanjing with a monthly income of 30,000. What he is most worried about is the depreciation of assets and pension issues. The one-year fixed interest rate for money deposited in the bank is 2.25, but everyone feels that the annual price increase is much more than this amount. Therefore, the money deposited in the bank is actually burning money slowly, until one day, your life savings will be gone. Yes, this actually happened when the Soviet Union collapsed. There is also the issue of pensions. China’s pension account has a deficit of more than 2.5 trillion yuan, which is about the same as China’s annual fiscal revenue. As the working population shrinks and the aging process accelerates, this number will expand to more than 10 trillion yuan. Are you comfortable counting on such funds for retirement? So what to do? I had no choice but to buy a house. This herbal medicine dealer's plan is to buy three high-end residences and one or two shops, and rely on renting to live in his old age. There are many people who have the same idea as him. From the perspective of the macro environment, with the sluggish stock market, low returns on bank wealth management products, and low interest rates on government bonds, it seems that investing in real estate is the only shortcut.

Although there are many rich people, China’s real estate market still needs the support of the vast majority of ordinary people. In other words, based on China's extreme polarization between rich and poor, China's housing prices are bound to rise and fall.

When housing prices are in an upward cycle, an absolutely huge number of wealthy people speculate on real estate on a large scale. With the help of bank funds, this kind of speculative capital can expand three to five times. When housing prices fall due to stagflation, large-scale funds are withdrawn, and the high-priced real estate market will form an embarrassing situation where "the rich dare not buy and the poor cannot afford it." Therefore, price cuts are inevitable. China's current real estate market is at such a stage. But some may wonder why housing prices seem to remain strong? Yi Xianrong theoretically told us a key reason: a big visible hand supports the housing market. So, who is supporting the market? The answer is the local government and banks. We know this from Nanjing's large-scale demolition plan this year. This is actually a way to delay the death of an unhealthy body in a way that harms the interests of the people. It is precisely because of the intervention of power that China's real estate industry, a "hundred-footed insect", can "die but not freeze".