Recently, Beijing University economics professor Yao Yang pointed out that due to the lack of funds injected by the central government, housing prices in China will continue to decline, following overseas experiences, housing prices are expected to drop by another 40%.
According to a report by Tencent Finance on July 2nd, during the Davos Forum held from June 25 to 27, Yao Yang made the above comments in an interview on the spot.
At the beginning of this year, Yao Yang had stated that the adjustment of the real estate market had been too slow, and housing prices should have dropped a long time ago.
Six months later, Yao Yang reiterated that based on overseas experiences to explain the current situation of housing prices in China, a 40% decrease in housing prices is needed for the market to correct, and it has not adjusted to that extent yet. The amount of funds injected by the central government is too small, and local governments are not actively expanding the scale of loans, so the market will naturally continue to adjust. If left to market forces, housing prices will inevitably continue to fall.
Yao Yang stated that the rapid development period of the real estate industry is over, and there is a need for “new growth points for the Chinese economy.” He predicted that in the second half of the year, there will still be new policies in the real estate sector, but it is unlikely to be the “big move” that people are expecting.
Since last year, the Chinese Communist Party has introduced a series of real estate policies in an attempt to stimulate the real estate market, but the results have been minimal. Yao Yang pointed out that once a policy is announced, sales may double the next day. However, a week later, the effect basically disappears.
Yao Yang’s views have stirred public debate.
“For example, taking Shenzhen as an example, according to the per capita income announced by the municipal government, housing prices in Shenzhen should be around 20,000 yuan per square meter, but now it has exceeded 50,000 yuan. If calculated based on the national average, a 40% drop is the normal level.”
“Based on income levels, regional economic development rates, price levels, currency values… a drop of 50%-60% or more would be normal.”
“When wages increased by 10%, housing prices rose by 50%, but now that housing prices have dropped by 10%, my income has decreased by 50%.”
The latest data shows that the sales of second-hand houses are bleak.
According to data from the China Real Estate Index Institute, the average price of second-hand residential properties in 100 cities in June was 14,762 yuan per square meter, a month-on-month decrease of 0.73%, an increase of 0.03 percentage points from May, marking the 26th consecutive month-on-month decline; the year-on-year decline was 6.25%. In the first half of the year, driven by owners “trading volume for price,” prices of second-hand houses in 100 cities fell by a cumulative 3.61%, an increase of 0.87 percentage points from the second half of last year.
It is worth noting that in June, the number of cities where second-hand housing prices fell monthly was 100. Cities where second-hand house prices have been falling have exceeded 90 cities for 13 consecutive months.
China’s real estate market is in crisis, with no bottom in sight, and it has become a consensus.
In May, the Chinese Communist government announced a 300 billion yuan loan mechanism, planning to provide 500 billion yuan in financing to local state-owned enterprises and requiring state-owned enterprises to purchase unsold completed properties at “reasonable prices” to transform them into affordable housing.
Research firm GaveKal Dragonomics estimates that based on market prices, the 500 billion yuan for purchasing homes can only absorb 12% of housing inventory. If purchased at a discounted price, it can absorb 20% of the inventory.
Standard & Poor’s stated that converting existing inventory into affordable housing will increase transactions for low-end housing and reduce overall housing prices.
A bank executive said: “Although this plan is beneficial to the real estate industry, it is not favorable for state-owned enterprises and banks because essentially, you are shifting some risk onto them.”
On March 4, Sharmin Mossavar-Rahmani, Chief Investment Officer of Goldman Sachs’ Wealth Management, explicitly advised against investing in China during an interview with Bloomberg TV.
She explained a series of reasons for making this decision, including expectations of a steady slowdown in the Chinese economy over the next decade. China’s three main economic growth pillars—real estate market, infrastructure, and exports—are weakening.
Mossavar-Rahmani said that while Beijing may introduce some short-term stimulus measures, the Chinese real estate industry has not yet hit bottom.