Chinese real estate market began to develop rapidly from late 1990s, when it became available to private investors. Significant problems in the Chinese real estate market relate to the lack of transparency of procedures’ offers of first-class land, variability administrative behavior, insufficient development of support services of functioning real estate market, the lack of support of the secondary market and overly speculative nature of the property. Obviously, many of these issues should be considered in the context of the reform process going on in China. The uncertainty of outcomes and policies, weak legal support, inadequate market mechanisms, unstructured management system and its decentralization can be identified as the main problems.
Prospects for further development of China’s real estate market relate to improving the institutional and operational factors. The continuing high rate of economic growth will increase urbanization, strong Chinese tradition to own residential real estate (currently 80% of households live in their own housing). This forms a large and steady demand and making Real estate and construction in China is of particular importance not only for the country but also is one of the most important in the world. China is the largest housing market in the world. It affects the economy of a number of global industries – from raw materials to electricity. The level of prices and availability of housing are subject to considerable efforts of the central government, which has developed quite a successful set of measures and actions that lead to positive market effect. Chinese investors are the main driving force of pricing on Chinese assets, whether they are real estate or securities, and they have plenty of capital – more than $1 trillion of private savings alone.
Each new round of urbanization and transformation of the economy in a modern look begins with the industrial sector, which in turn requires a modern infrastructure. Thus, the beginning is the presence of electricity, transport, residential and nonresidential accommodations. Planned unit of China’s economy allows the government to run in different parts of the country’s urbanization cycle. With a huge workforce of agricultural areas and significant investments in real estate, the state creates a favorable environment for the organization of production by foreign and local companies.
China has experienced high rates of inflation in the last decade and the only thing to keep up with the rate of inflation was real estate prices’ growth. Now, however, the need for preservation of assets through the property significantly reduced. This is for two reasons: the fight against corruption and the imminent introduction of high property tax. “Wealth effect” in China (where assets worth more than 25 trillion US dollars related to the housing market) is directly associated with the real estate market. Based on real estate prices, the vast majority of the middle class and below cannot buy their own homes. Thus, buyers are mainly government officials and rich people, who want to preserve their assets. Senior officials were reported to have tens or a few dozen of apartments.
As of December 1, 2014, the real estate market in China has no improvements, despite a series of actions designed to interrupt the downward trend. In November, prices fell in 82 cities rose in four, compared to the previous month. For example, in Hangzhou there is a strong decline in home prices, the reduction amounted to 0.93% compared to the previous month and 10.08% year on year. Out of 100 cities, only 18 cities have house prices growth compared to last year.
References:
“Rate cut no effect as China’s home prices drop for 7th straight month”. ShanghaiDaily. 1 December, 2014. Web.
Fung, Esther. “China Issues Draft Rules for Property Registry”. The Wall Street Journal. 15 August, 2014. Web.
Wang, Ming, Lai, Kin Keung and Yen, Jerome. China’s Financial Markets: Issues and Opportunities. London: Routledge, 2014. Print.
