What Is a Real Estate Bubble?
CHARLES P KINDLEBERGER wrote in a "bubble" entry for the New Palgrave Dictionary of Economics: "A bubble can be defined less strictly as: Or a series of sharp rises in asset prices in a continuous process. The initial price increase makes people expect that prices will rise further, thereby attracting new buyers-these people are generally speculators who profit by buying and selling assets. The use of assets and their profitability are not of interest. As prices rise, it is often the expected reversal and plunging prices that often lead to financial crises. "
Real estate bubble
CHARLES P KINDLEBERGER
1. The real estate bubble is
1. House price performance: the price is abnormally high, the overall price is rising, and the actual rent is falling
Table 1 Property price table
Types of | Subclass | Specific indicators | Foam Reference Standard | China actual value or situation |
slight | serious |
which performed | price | sale price | Price-to-income ratio: within 1: 6 | 1:10 or more | Roughly 1:18 |
House price growth | House price growth / per capita income growth> 1 | House price growth> 30% | House price growth / per capita income growth> 1 |
Price range | Various properties across the country rose | Various properties across the country rose | Various properties across the country rose |
Rental price | Rental price index / CPI index <1 | Rental price index <100 | Rental price index / CPI index <1 |
Investor psychology | More optimistic | Very optimistic | More optimistic |
Can be seen from Table 1:
(1) The selling price is too high. The price-to-income ratio is a basic indicator of the level of real estate prices. Excessive house price-to-income ratio means that real estate prices are out of demand. A suitable international house price-to-income ratio is generally between 1: 2-6. In January-September 2004, the average price of commercial housing in China reached 2770 yuan per square meter, and the national average house-to-income ratio was close to 1: 8. 10 or more. According to a survey of 50 cities across the country in January 2003 and January 2004, more than 66% of the respondents considered it high, and 58% of the respondents considered it high.
(2) The selling price rose rapidly. The continued sharp rise in real estate prices is an important manifestation of the real estate bubble. Reasonable selling price growth should not be higher than the growth of disposable income, otherwise this growth will not be sustainable in the long term. Officials from the Ministry of Construction believe that the basic axis of annual house price growth should be 3%. Since 2003, China's real estate prices have risen rapidly. From January to September 2004, the growth rate of housing sales prices has increased by 13.4% over the same period in 2003, exceeding the growth rate of disposable income per capita of 8.7% (adjusted by the CPI index).
(3) The selling price has risen across the board. The overall rise in real estate prices is an important manifestation of the real estate bubble. From January to September 2004, real estate sales prices across the country have been rising, and the growth rate of sales prices in some regions has reached about 20%. In terms of different regions, prices in six regions across the country increased by more than 20%. In terms of cities, Hangzhou's house prices rose from 3,000 yuan per square meter in 2000 to more than 5,500 yuan in 2004; Fuzhou's house prices rose from 2,000 yuan / square meter to 6,500 yuan / square meter in the past three years. From January to September 2004, the sales prices of various types of real estate across the country rose rapidly, with private housing transaction prices rising the most, with the index reaching 115.2.
(4) Actual rents have fallen. The real estate market can be divided into real estate sales and leasing markets in general. The general leasing market can accurately reflect real consumer demand. When there is speculative demand in the real estate sales market, when speculative demand in the sales market is strong, the leasing market has a large increase in supply and simultaneous demand A large shift to the sales market will result in a decline in the rental price of real estate. The rise in real estate rent and sale prices lower than the rise in prices means that there is a bubble in the sales market, and the absolute decline in real estate rent and sale prices means that the sales market has a serious bubble. From January to September 2004, the rental price growth rate of houses was 2.1%, which was much lower than the 5% increase in consumer prices of urban residents, indicating that the actual rental price of houses was falling rapidly.
(5) Investors are very optimistic about the situation. Investor optimism is the psychological basis for the growth of real estate prices and demand bubbles, and the change in optimism is also a necessary and sufficient condition for the burst of the bubble. Until now, Chinese developers have been almost completely optimistic about the real estate market situation and opposed to the real estate bubble. And at least before raising interest rates, many enthusiastic investors are very optimistic about the real estate situation, and investors in individual cities are almost crazy. But the rational outsider takes a completely opposite or pessimistic attitude. A survey conducted by AIA consultants in early November 2004 showed that 74.9% of the respondents believed that there was a bubble, and 7.2% of the respondents considered that there was no bubble.
2. Demand performance: Housing sales have increased sharply, mortgage loans have increased significantly, and a large amount of domestic and foreign funds have entered
Table 2 Demand performance table
Types of | Subclass | Specific indicators | Foam Reference Standard | China actual value or situation |
slight | serious |
which performed | demand | Home sales growth rate | 1 <growth rate / retail consumer goods growth rate <2 | Growth / Retail Consumer Goods Growth> 2 | 1 <growth rate / retail consumer goods growth rate <2 |
Mortgage growth rate | 1 <growth rate / per capita income growth rate <2 | Growth rate / per capita income growth rate> 2 | Growth rate / per capita income growth rate> 1 |
Savings as a percentage of total deposits | Savings as a percentage of total deposits decline | Severe decline | decline |
International hot money | Enter in large numbers | Fast entry | Enter in large numbers |
Private hot money | Enter in large numbers | Fast entry | Enter in large numbers |
Can be seen from Table 2:
(6) Housing sales have increased abnormally. The growth rate of housing sales should increase at a rate slightly higher than the growth rate of total retail sales of consumer goods. Excessive growth means that there is investment demand other than real demand. In 2003 and January-September 2004, the growth rate of housing sales increased much faster than the total retail sales of consumer goods, reaching 27.2% -39.7%, which was 18.1-28.2 percentage points higher than the total growth rate of retail sales of consumer goods. During the overheating period of real estate from 1992 to 1993, the growth rate of housing sales reached 42% -56%, which was 25-27.5 percentage points higher than the growth rate of total retail sales of consumer goods. This shows that there is a lot of speculative demand in the real estate sales market.
(7) Explosive growth of mortgage loans. The real demand for real estate depends on the growth of household income, and the expansion of speculative demand for real estate mainly depends on the growth of housing mortgage loans. Therefore, the ratio of housing mortgage growth to household disposable income growth reflects the development of the real estate bubble from the perspective of demand. The larger the index value, the higher the degree of speculation. Personal housing loans have grown rapidly. From 1999 to 2003, the balance of personal housing loans increased by 218.6%, 148.72%, 65.77%, 47.71%, and 42.46% year-on-year. In 2003, the balance of personal housing loans reached 1.177974 trillion yuan. The balance of home mortgage loans has reached 1.200 billion yuan, more than 50 times that of 1997, which is higher than the increase in household disposable income during the same period. Due to the low base of housing mortgage loans, we cannot simply conclude that the market bubble is based on the continuous growth of this indicator, but this growth is indeed extraordinary.
(8) Residents' savings are rapidly decreasing. The continuous decline in the growth rate of deposits may mean that residents have begun to withdraw money from banks for consumption or investment in value preservation. In February 2003, the ratio of household savings to total deposits was 53%, and by September 2004 it had fallen to 49%. Since 2004, renminbi savings deposits have decreased year-on-year for the seventh consecutive month. From January to August, renminbi savings deposits have cumulatively increased by 108.6 billion yuan, a year-on-year decrease of 140.6 billion yuan.
(9) A large inflow of international hot money. The massive inflow of international hot money and investment in real estate will drive speculative demand. At present, international hot money has entered China in large numbers in various hidden ways. According to estimates of relevant experts: At present, China's foreign exchange reserves of about 510 billion US dollars, the trade surplus is about 100 billion U.S. dollars, foreign direct investment is about 300 billion U.S. dollars, the remaining 100 billion U.S. dollars is hot money, and some of the hot money flows into the real estate market. Some survey reports of Beijing Daguan Real Estate Brokerage Co., Ltd. show that among Beijing home buyers in 2003, there was an increase of 4.9 times from Europe and the United States, and an increase of 2.5 to 3.5 times from Hong Kong, Macao and Taiwan. The proportion of home purchases made by overseas people is close to 15%.
(10) A large inflow of private hot money. A large amount of private capital has invested in real estate, creating a huge speculative demand, which has led to a sharp rise in house prices. From 2001 to 2003, Wenzhou-based Zhejiang and other privately owned real estate speculation groups made huge waves in the Chinese real estate market. These collective home buyers were first in the local area, then entered Zhejiang and Shanghai, and then rushed to the whole country, focusing on surprise purchases. It is estimated that the number of home buyers in Wenzhou is nearly 100,000, and the seed funds for home purchases are around 100 billion yuan. The real estate speculation group leveraged several or even dozens of times of local funds to enter the property market, spurring local consumption in advance and speculative demand, which in turn led to the mutual advancement of demand and prices, and housing prices in many fired real estate cities skyrocketed.
(11) The proportion of investment property purchases is high. The proportion of investment house purchase funds in total house purchase funds is an important indicator for judging the real estate bubble. The international standard for this indicator is 10%. According to surveys by relevant departments, the proportion of investment-oriented home purchases has grown too fast. For example, in Shanghai, the proportion of overseas and foreign residential purchase demand is up to about 25% in terms of area, the proportion of investment housing purchases is 16.6%, and the proportion of office investment investment purchases is as high as 40%; Fuzhou's foreign residents' contract registration volume, area and balance accounted for the same period respectively. 42.3%, 44.9%, and 45.4% of the total; less than 50% of local buyers of commercial housing in Hangzhou.
3. Supply performance: abnormal growth in supply and excessive vacancy rates
Table 3 Supply performance table
Types of | Subclass | Specific indicators | Foam Reference Standard | China actual value or situation |
slight | serious |
Investment property purchase ratio | 10% <investment / total purchase ratio <20% | Investment / total purchase ratio> 20% | 10% <investment / total purchase ratio <20% |
which performed | supply | Development investment growth rate | 3> Growth rate / GDP growth rate> 2 | Growth rate / GDP growth rate> 3 | Growth rate / GDP growth rate> 3 |
Development loan growth rate | 2> Growth rate / total loan growth rate> 1 | Growth rate / total loan growth rate> 2 | 2> Growth rate / total loan growth rate> 1 |
Housing construction area growth rate | 1 <growth rate / sale area growth rate <2 | Growth rate / sale area growth rate> 2 | 1 <growth rate / sale area growth rate <2 |
Vacancy rate | 10-20% | 20% or more | 20% or more |
Can be seen from Table 3:
(12) The abnormal increase in investment in development. Investment in real estate development is the most direct reflection of real estate supply on demand. The extraordinary increase in development investment may mean the formation of speculative demand and artificially high prices. The indicator for measuring the growth rate of real estate investment is real estate investment growth rate / GDP growth rate, which should generally not exceed 2 times. In 2003, China s total real estate development investment exceeded 1 trillion yuan, a year-on-year increase of 29.2%, the largest increase since 1995. From January to September 2004, real estate development investment increased by 28.3% year-on-year, which is three times the GDP growth over the same period. .
(13) Abnormal growth in development loans. The growth of real estate development loans exceeded the growth rate of all loans and the extraordinary growth may be a favorable reflection of the speculative demand of bank funds. From 2000 to 2002, the growth rates of loans for real estate development were 11.81%, 32.96%, and 27.78%. On the basis of rapid growth for five consecutive years, real estate development loans across the country reached 665.735 billion yuan in 2003, a year-on-year increase of 49.1%. From 2000 to 2003, all loans increased by 6%, 13%, 17%, and 21%.
(14) Construction area increased abnormally. The construction area is the future supply of houses. The increase in construction area requires that there must be a matching increase in demand in the future. From January to September of 2002, 2003, and 2004, the growth rate of construction area was 20.1%, 26%, and 23.3%; from January to September of 2002, 2003, and 2004, the growth rate of sales area was 20.2%, 29.1%, and 19.3%. Even considering speculative demand, the increase in construction area exceeded the increase in sales area.
(15) The vacancy rate of houses is too high. The vacancy rate of housing is a concentrated expression of real estate supply exceeding real demand, and the internationally recognized warning line is 10%. In 2003, the area of vacant houses nationwide reached 125 million square meters, and the vacancy rate reached 26%. At the end of September 2004, although it fell 2.3% year-on-year, it still exceeded the international warning line. This decline may be due to increased speculative demand. Although housing vacancy rates are somewhat different from international concepts, the high domestic vacancy rate reflects deeper structural problems.
Economic and social structural imbalances
The existence of a real estate bubble means that investing in real estate has a higher
1. Strengthen the macro-monitoring and management of the real estate market
Changes in the macroeconomic situation and policies often cause a chain reaction of other factors, including national taxation, labor employment, and household income.
At the "First China Commercial Real Estate New Trends Forum" hosted by the Commercial Real Estate Professional Committee of the China Real Estate Association, the risk of real estate bubbles is currently intensifying, grasping new urbanization opportunities, and responding to the impact of e-commerce. Traditional commercial real estate development models and structural layouts need to be changed urgently. Transformation has become an inevitable choice for the future survival and development of commercial real estate.
In general, although China's real estate is currently in a state of relative oversupply in the short term, with the deepening of industrialization and urbanization, the steady increase in national income and the continuous upgrading of the consumption structure, China's real estate industry is still of great importance Strategic opportunity period. If real estate companies want to go further, they need to break the barriers of homogeneity of commercial real estate and adjust their strategic layout. It is necessary to optimize the existing commercial real estate industry and build a commercial real estate industry that meets market demand. At the same time, it is necessary to realize the combination of real estate and other industries and pay attention to the formation of industrial chains, such as the development of tourism real estate, pension real estate, commercial real estate, and leisure real estate.
Real estate bubble
Since home prices are still rising during the recession, some reports suggest that the recession has not washed away excesses in the market. In existing house
In December 2003, the price increased by 8.4% over the same period of the previous year, and the total value reached 151,400 US dollars. Morris, a securities economist at HSBC, said in a report that rising prices have created an unsustainable situation, especially when compared with income. Because HSBC is one of the largest mortgage creditors in the United States, Morris' report has caused some discomfort. Morris said his view was based on public economic data and not information on bank mortgage business.
But skeptics like Morris are in the minority. Most economists believe that the housing market still has a solid foundation, which is caused by strong demand from immigrant buyers, low interest rates and tight housing supply. Zandy, chief economist at Westchester Consulting in Pennsylvania, said that 2001 may have been a high level for quite some time, "but the factors supporting the housing market still exist. I don't think there will be a widespread price collapse."
Morgan Stanley economist Bona said in a report titled "House Prices: The Bursting Bubble" that some participants argued that the real estate market must be disintegrating, disrupting consumer finances and contributing to a recession.
Bona admits that housing prices have risen faster than ever before in the past five years, and those who track the bubble point out that the Japanese real estate market began to crack more than a year after the Japanese stock market's Nikkei peaked in 1998 . But Bonner doesn't think the collapse is coming, although he expects house price increases to fall to 2% -4% in the next few years. He said the bubble will persist in high-priced cities such as San Francisco, New York, Miami and San Diego. He said that the supply of existing homes in 2004 was only equivalent to four months of sales, and the supply of new homes was only four months of sales. These are very low figures according to historical standards.
HSBC's Morris used the ratio of real estate value to income as evidence in his report on the US Real Estate Cycle: Another Bubble. He said that ratio is equal to the "price-earnings ratio" of the real estate industry.
According to his calculations, the current ratio of real estate prices to income is 1.6, which is more expensive than people's income. This level is roughly equivalent to the ratio in 1989, the last year when the long-term decline in real estate prices began. For most of the 1960s and 1970s, the ratio of real estate prices to income was usually 1.2.
Morris said that the current high prices for homes are overshadowed by extra-low interest rates, which allow consumers to reduce their debt burden and live in homes that exceed their actual purchasing power. Rising interest rates will cause prices in the housing market to fall. He doesn't think there is a problem in all parts of the US real estate market. Home price-to-income ratios are still relatively low in states such as New Jersey, Florida, Texas, and Illinois, as income growth in those places outpaced home price increases. But in other states, especially in the western and central North, such as California, Washington, Oregon, Michigan, and Minnesota, home-to-income ratios are high.
Of all the cities, San Francisco, Boston, and Seattle appear to be the most at risk; Dallas, Atlanta, and Houston are the places where people can afford their homes the most because of rising incomes over housing prices. But surprisingly, although New York homes are expensive, they are more affordable than they were in the 1980s. Morris also said that the problem of high-end housing is greater, especially those that cost more than $ 300,000.
Real estate bubble Japanese real estate
In September 1985, the finance ministers of the United States, the Federal Republic of Germany, Japan, France, and the United Kingdom signed the "Square Agreement" and decided to agree to the depreciation of the dollar. In order to stimulate the development of the Japanese economy, the Japanese Central Bank adopted a very loose financial policy to encourage capital to flow into the real estate and stock markets, causing real estate prices to skyrocket. After the depreciation of the US dollar (a large number of additional US dollars), a large amount of international capital entered the Japanese real estate industry, which further stimulated the rise in house prices. Tempted by soaring house prices, many Japanese are beginning to lose patience. They found that stock speculation and real estate speculation came faster, so they took out bank savings to speculate.
By 1989, real estate prices in Japan had soared to a very ridiculous level. At that time, the land area was equivalent to Japan in California, USA, and the total market value of land value was actually equivalent to 4 times the total land value in the United States. By 1990, the land price in Tokyo alone was equivalent to the total land price in the United States. The average working class cannot afford to buy a house in a big city even if it spends their life savings. Only billionaires and a few large company executives can afford the house.
After 1991, with the withdrawal of international capital after its profits, the Japanese real estate bubble, which was driven by foreign capital, quickly burst and real estate prices plummeted. By 1993, Japan's real estate industry had completely collapsed, individuals had gone bankrupt, businesses had closed down, and the bad debts left over had reached $ 600 billion.
Judging from the consequences, the Japanese real estate bubble that burst in the 1990s was the longest in history. The bubble not only hit the real estate industry severely, but also directly caused a serious financial crisis. Affected by this, Japan ushered in the longest economic recession in history and fell into a 15-year depression and depression. Even now, the Japanese economy has not completely come out of its shadow.
People often call this real estate bubble "another defeat in Japan after World War II" and regard the 1990s as Japan's "lost decade."
Real estate bubble Chinese real estate
Jack Rodman, president of Global Distressed Solutions, thinks Beijing's real estate market is about to collapse. Rodman noted that about half of Beijing's commercial properties are currently vacant. To prove this, he kept slides of 55 vacant office buildings in his computer. He said that there are still more than 10 such office buildings that have not had time to take photos. "The purpose of taking these pictures is to make people understand that there is already a severe oversupply," Rodman said.
Driven by government officials aimed at promoting growth, Chinese banks have provided loans equivalent to $ 1.4 trillion, most of which are used to build skyscrapers and other businesses Real estate bubble
estate. Vacant buildings are now spread across mainland China. Beijing's office vacancy rate reached 22.4%, ranking ninth among 103 markets tracked by real estate agent CB Richard Ellis. This figure does not include projects that will soon be put into operation, such as the 74-story building of China World Trade Center Phase III, which will become the tallest building in Beijing upon completion. James Chanos, founder of New York-based hedge fund Kynikos Associates, said: "A huge real estate bubble and fixed asset investment bubble are forming. It is very difficult to moderate the bubble's expansion with modest measures. of."
Policymakers are worried about this, they are trying to curb the supply of funds to promote the development of the real estate industry. On January 27, 2010, the China Banking Regulatory Commission asked the banking industry to control the growth of loans. The CBRC issued a notice on its website saying that banks should "strictly" follow real estate loan policies. "Chinese authorities are clearly working to curb excessive bank lending," said Stephen Roach, chairman of Morgan Stanley Asia.
On February 12, 2010, the People's Bank of China raised the bank reserve ratio for the second time. The move should help reduce the amount of funds held by banks that can be used for new loans to slow down loan growth.
If the Chinese government fails to cool the market and the real estate bubble bursts, non-performing loans will surge. Relevant officials in Shanghai said on February 4, 2010 that if real estate prices fell by 10%, Shanghai's debt default on mortgages would triple. Charlene Chu, an analyst at Fitch Ratings in Beijing, said that since some industrial loans to state-owned enterprises have been used for real estate investment, the situation may be worse than expected. She judged: "Hidden real estate risks are much more than we have seen."
