CHINA REAL ESTATE PRICE HIGH
It is evident that China is engulfed in real estate property bubble. The high cost of housing evidently supports this statement. There are numerous reasons that are attributed to the situation in China today. Low interest rates and enhanced lending by banks since 2003 is one of the factors attributed to the property bubble in China. It is during this time when Wen jiabao allowed cheap credit for the purchase and construction of property. Besides this, the competing debt investments were rendered less appealing. The limited access to foreign investments for citizens of the country also led to this stand. With constrained foreign investment, the Chinese citizens were left with no choice but to invest in the local economy, with housing and property as an option.
The local government of China mainly relied on land sales for income generation. Half of the revenue collected by the government was sourced from land sales (Cohen, 2010). As a result, there was continued improvement in the value of land. The developments by the government in the transacted land have also played a major role in the increase of prices of the land in China and hence the property bubble.
The economic stimulus package as a government project has also aided in the improvement of the land and property in China. In this case, the stimulus money has by means of economic powers found its way into real estate. The implications are numerous with an increase in the prices of the property being one effect. Further, there are numerous cultural pressures in the country that mainly encourage home ownership. This is mainly for men who endeavor families. The effect is an increased demand for the housing services and consequently the current property bubble.
The evidence that the county is experiencing a bulge in the property prices cannot be refuted. For instance, there are a significant number of commercial and residential houses in the country that are not occupied. In normal circumstances, there would not be an increased or even any other significant development on housing in the country. However, this is not the case as the country is in a continuous quest to develop in the construction industry. The number of estimated vacant apartments in the country is 65 million (Powell, 2010). This is a real evidence of the property bubble in the country.
There is also a high price ratio to incomes in real estate. For instance, in Beijing, the ration is about 27 to 1 years (Xu, 2009). This is five times the internationally recognized and current mean. This ratio is based on a double income household. The implication is that the ratio is about 54 to 1 years for a single household. This is also a supporting evidence of the property bubble in the country. Further, the high price to rent ratios is very high. In Beijing, the ratio stands at an approximate 500:1 month. In comparison to the global ration of 300:1 month, the ratio being experienced is extremely high. For 100 times the monthly rent, homes are readily available in Minneapolis.
There is a weak secondary market in regards to Chinese homes. This is in line with the ration of primary to secondary property transactions at 0.26 for the first half of 2009. Comparably, the United States has a ration of 13.45 and Hong Kong has 7.25.
In the same context, Chinese companies in the steel, chemical, textile, and shoe industries are opening divisions in real estate. The companies in the industry have always expected higher returns for their money in the business hence a cause for the escalating house prices. Similar to the peak of the United States, the residential housing investment as part of China’s Gross Domestic Product tripled from 2% to 6% from the 2000-2011.
The measures by the government of China for cooling the escalating prices in real estate market seem to be working. This is mainly attributed to the fact that property prices increased at their slowest rate in the last eleven months in July. The Cabinet of the country has aided in the slowing of the pace of the property prices. The cabinet has for instance proposed that it will expand the measures already applied by reining in residential prices to smaller cities. This is a process that will be done after limiting home purchases in metropolitan sections including Beijing and Shanghai.
The problem in the real estate of the country evidently needs urgent addressing. There are various steps that can be done to curb the increased costs of housing in the country. The government has not only the power, but also the will to reduce the escalating prices since all the land is owned by it. Releasing more of the land to developers in the country will ensure that the prices of the land are lowered. The prices of land might go back to the normal if this undertaking is adopted by the government. However, this move will make the current home owners lose substantially in their wealth.
The government should also introduce property taxes. These taxes will aim at reducing the number of individuals who want to buy more than one residential property. The minimum down payment should also be raised (Mufson, 2010). The country’s government has already started practicing some of these moves.
China’s real estate problem can be alleviated by involving foreign investment. For instance, I would propose that the country’s government invites the Japanese developers so that the popular “one room” developments can be created. It is important to note that the Chinese developers have not yet created a practical living space that shelters both the aged and the young. This is not in line with the demography being derived in the country.
The citizens of China should stop being dependent on the government for housing. I believe that the citizens prefer having their own space that caters for their needs and ensures that they are fully independent. The system of one room apartments in Japan where the aged, students, and employed individuals dwell in is a good example. The government of China should seriously consider creating a one roomed apartment with all the necessities. The room should ideally have a unit bathroom, a kitchen sink, and a cooking area. Just as these economical living spaces cater for the needs of many in Japan, its inclusion in China would mean that government subsidies on property are not needed.
The government has taken some steps in the reduction of the property prices. Some of the steps currently being adopted by the government will have a long term positive effect. For instance, the introduction of the real estates sales tax was imposed in 2009. This was created as a measure of curing the lethal speculative investment. Though the effect has not been widely felt, it is evident that it will be experienced in the near future.
The introduction of the monitoring of capital flows by the Chinese cabinet is also a very positive step towards curbing the increasing property prices. This move was aimed at reducing the increasing overseas speculative funds which jeopardizes the property market in China. The cabinet also introduced an increased levy for home owners who were seeking additional housing units. The proposal is that 40% down payment will be needed.
The elimination of a mortgage discount for first time property purchasers was a good step. This is a move that aims at further reducing the demand and hence the prices of the property in China. The initial offer of 5% mortgage discount was accumulatively dangerous and hence contributed to the escalation of demand and consequently prices.
Lastly, the ban on sales of homes to individuals who have not lived in Beijing for the last half decade is the latest yet effective move. This move was initiated in the start of 2011. Beijing further reduced the number of property that a native family in Beijing could own. Non native Beijing families can only own one home. If this move is repeatedly adopted in Shanghai and other major cities within China, it is evident that the property prices in the country will be checked in the short run. The government should consider expanding the moves that are in place and already working so as to enhance the speed of price subsidization.
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