The Waning of China's Real Estate Industry

Some viewpoints of this video may be a little bit radical and pessimistic,  but most of the problem it described are correct.Overall,it could offer a better understanding for China real estate bubble problem.

Factors causing the Chinese real estate bubble and solutions

To analyze the reasons why the real estate bubble problem emerged and getting more serious, we should focus on these factors as follows. The basis of the bubble could be the scarcity of land. As China has a population of 1.4 billion, so the areas of undeveloped land resources are very limited. However, from the perspective of an individual, they would always want to seek better living conditions with the ownership of homes as this is traditionally and culturally ingrained within the Chinese mindsets. What’s more, enterprises want to use the newly undeveloped lands to expand their size, building and production. These reasons increase the demand for land. As a result, people are always very optimistic on the expectation of the rising price of real estate. In addition, the land is owned by the China central government, the developers and investors could buy the land-use rights from the government, which is tightly controlled. This makes the supply of land resources very limited, which causes many real estate enterprises and private investors to invest largely in real estate, so as to obtain the benefits from rising prices. Moreover, as investors are optimistic about the future economic prospect they use the real estates to get more mortgage loans from the bank to reinvest the speculation makes the price soar.

The speculative demand expansion is the direct cause of real estate bubble, for the purpose of speculations people buying houses are not for the purpose of occupying it but to resell it for a profit. This kind of behavior once again becomes popular, it is difficult to control and thus the real estate bubble emerged. Furthermore, the excessive lending of financial institutions make the real estate bubble deteriorates. Financial support is a necessary condition for real estate bubble as it cannot exist without the cooperation of banks and other financial institutions. Buildings are fixed assets, which can easily be auctioned by the bank if the real estate investors cannot payback the mortgage loan. Banks consider that the loan risk very small, so they are willing to extend the mortgage loans to real estate investors. In addition, the banks are also too optimistic on estimating the value of the mortgaged property, which strengthens the financing abilities for the borrower to invest in real estate, intensifying the rising price in real estate and the expansion of the industry.

The burst of bubble could lead to a disastrous result in both economics and the political environment, it is very important for the Chinese government to regulate the real bubble estate before it goes too far. The investment in the real estate market is very active so the government should formulate appropriate policies to monitor the market. The scale of investments should adapt to the income level of citizens in every city and the newly built buildings should be controlled. What’s more, the regulation of real estate’s secondary market should be strengthened, preventing excessive speculation. In addition, the government should adjust the structure of real estate investments encourage the investment on economically affordable housings. Besides, building a thorough warning system for nationwide real estate market is also necessary, by analyzing the collected data from the market, the government could evaluate the investment, make predictions in future trends and make reasonable polices. These warning systems will provide the government an effective way to monitor the market, preventing the emergence of the bubble.

The control of land resources is another important aspect for the government to shrink the bubble. The government should supply land size depending on the market requirement. Aimless investments must be stopped, punish all kinds of irregularities and illegal land trading activities, and prevent government corruption in dealing with the problems of real estate investors. In addition, the regulation of financial institution should also be taken seriously. Much of the money that promotes the real estate bubble is from the bank, so it is crucial to improve financial regulatory system and strengthen supervision ability. Restrain the total social credit, make it adapt to the real social economic requirement, reduce the loan to the real estate investment by adjusting the interest rate and industry policies. Moreover, the foreign capital should also be regulated, especially the foreign hot money, preventing it from speculations and deteriorating the bubble.