GuShiio.com 
Today we are going to talk about housing prices. If you have a house or want to buy one, you must listen to today’s content. I will first give you the trend I have observed: housing prices in different regions are accelerating differentiation. If you hold real estate in third-tier and fourth-tier cities and below, you must listen carefully to this lecture.
Next, we will analyze this matter in depth and answer three questions: What is the phenomenon of accelerated differentiation of housing prices? What is the big logic behind the value of real estate assets? What impact does this have on you?
Housing prices are accelerating differentiation
Let’s get started.
Since last year, the real estate market has been launched one after another, from the “one city, one policy” in February last year to the “517 New Policy”, and then on September 24, the three departments, namely the People’s Bank of China, the Financial Regulatory Bureau and the China Securities Regulatory Commission, held a joint press conference and launched a series of rescue measures, such as lifting purchase and sales restrictions, reducing down payments, reducing interest rates, reducing deed taxes, the government’s participation in storage, the expansion of unfinished building funds to 4 trillion yuan, and the restart of monetized shantytown renovation.
After this series of shots in the arm, the domestic real estate market has indeed improved. According to data, the real estate market in Shanghai, Beijing, Shenzhen, Chengdu and other places has recovered, the transaction volume has increased, and housing prices have begun to stabilize or even slowly climb.
However, the performance of housing prices between regions is accelerating differentiation. Since the three departments jointly launched a heavy new policy on September 24 last year, the housing prices and transaction conditions of the real estate market in various places have shown the obvious characteristics of stabilization and recovery in first- and second-tier cities, while the third- and fourth-tier cities continue to be sluggish.
This situation is a bit surprising. Why do I say that? In the past, whenever a favorable policy was introduced, the housing prices in small and medium-sized cities would be instantly ignited. The housing prices in third- and fourth-tier cities were like a rocket, rising much faster than those in first- and second-tier cities. But now, it is the opposite. The first- and second-tier cities are stable and warming up, while the third- and fourth-tier cities continue to be sluggish.
Behind this is a very important future trend, that is: in the future, housing prices between cities of different levels will be greatly differentiated, and the differentiation will accelerate. The strong in first- and second-tier cities will always be strong, while most of the weak in third- and fourth-tier cities will be weaker.
What is the logic of real estate asset value?
What is the logic of real estate asset value behind this trend?
Economist Ren Zeping once proposed a theory: “For real estate, short-term policy, medium-term supply and demand, and long-term population”. Let’s analyze this from three dimensions: short-term, medium-term, and long-term.
In the short term, last year’s policy measures were frequently introduced, including reducing down payments, interest rates, deed taxes, lifting restrictions on sales and purchases, repairing unfinished buildings, and re-demolition. We know that the background of China’s real estate market is actually the policy market, and the impact of government policies on real estate is crucial. Under such a large-scale policy push last year, we can see that housing prices in third- and fourth-tier cities have not improved much, and have not even stabilized the downward trend.
In the medium term, in the past ten years, third- and fourth-tier cities and below have built houses on a large scale. More than 95% of the country’s more than 6 billion square meters of housing inventory are in third- and fourth-tier cities and below. The inventory and supply are very huge, and it is difficult to digest them relying solely on local purchasing power. The possibility of outsiders investing in these cities has become smaller and smaller, which is a huge difference from first- and second-tier cities. Let me share a data with you. Let’s compare the real estate inventory turnover cycle in Beijing and Zhangjiakou, Hebei. The so-called inventory turnover cycle refers to the time required to sell out the stock of commercial residential properties to be sold according to the average sales speed in the recent period. For example, the real estate inventory turnover cycle in Beijing is only 12 months, but in Zhangjiakou, which is only 150 kilometers away from Beijing, the local real estate turnover cycle has reached 133 months. The houses built in one year will take 10 years to sell out.
In the long run, the population and industries of many third- and fourth-tier small and medium-sized cities are constantly losing, and young people and many high-quality enterprises are moving to large coastal cities or central cities in the region. These small and medium-sized cities are being siphoned by large cities, causing their housing prices to lose the most basic rigid demand support, that is, without sustained and stable rigid demand, there will be no housing price increases.
The country is actually aware of this. At the press conference of the State Council Information Office of the Ministry of Housing and Urban-Rural Development on October 17 last year, the head of the Ministry of Housing and Urban-Rural Development said frankly: “From a regular point of view, the ‘siphon effect’ is a common phenomenon in the development process of cities around the world. Population and industry are concentrated in larger cities in urban agglomerations. But from the perspective of impact, the ‘siphon effect’ has both advantages and disadvantages, and we will seek benefits and avoid harm. Different cities and different stages of urban development will have different impacts on them. “You see, this attitude and words have already explained it.
Let’s summarize. In the short term, despite the policy efforts last year, the housing prices in third- and fourth-tier cities have not improved much; in the medium term, the housing inventory accumulated in third- and fourth-tier cities over the past decade may not be sold out in the next 10 years; in the long term, affected by the siphon effect, housing prices are accelerating differentiation. In the future, the strong in first- and second-tier cities will always be strong, while most of the weak in third- and fourth-tier cities will be weaker.
How does the differentiation of housing prices affect you?
So what major impact will the differentiation of housing prices between first- and second-tier cities and third-, fourth- and fifth-tier cities have on each of us? I have summarized three points, and we will talk about them one by one.
The first impact is that the investment attributes of most houses in third-, fourth- and fifth-tier cities will become smaller and smaller.
We can see that a considerable proportion of houses in third-, fourth- and fifth-tier cities have not yet shown signs of stopping the decline, that is, they cannot find the “bottom” of the market. Even if they stop falling in the future, it will be difficult to rebound and rise. Investing in third-, fourth- and fifth-tier houses is increasingly likely to become a loss-making business. If you still hold such a house, you might as well pay attention to the market promotion period after each national policy is introduced to see if you want to find an opportunity to replace it. The value preservation of this type of property may continue to decline, and the possibility of a significant price increase in the future is relatively small.
The second impact is that the fiscal revenue of third-, fourth- and fifth-tier cities may need to find a new growth direction.
Because most of the revenue of the governments of a large number of cities below the third tier comes from land sales, if the houses cannot be sold, then the land cannot be sold, and the finances will encounter difficulties. Only by finding a new direction for income growth can these cities maintain stability and growth in terms of business environment, consumption level, and municipal maintenance. But pay attention to my wording, what if some cities have not found new directions?
The third impact is that companies and individuals need to choose cities carefully.
You should know that the upstream and downstream of real estate connect more than 200 industries. If the local real estate market in some cities is not doing well, these industries may gradually move away from the local area because of unprofitability, and their relocation will also take away job opportunities. Therefore, whether you are a company or an individual, you must be more cautious when choosing a city.
Finally, I would like to give you my judgment for your reference: China’s real estate market will pick up sooner or later, but this recovery may not benefit all third- and fourth-tier cities. My suggestion is, as the head of the Ministry of Housing and Urban-Rural Development said, “seek benefits and avoid harm” as soon as possible.
