Real estate and the investments it brings with it have benefited from the boom in the economy while becoming an essential revenue resource for local governments. How has this market evolved since the liberalization of the sector in 1998? Trigger Trend Research provides some insights.
Average price per square meter, 10,000 yuan (1500 USD)
According to the National Bureau of Statistics, from January to September, the area of housing sales reached 1.171 billion square meters and showed a decrease of 1.8% compared to the previous year. On the other hand, the amount of 11.56 trillion yuan shows an increase of 3.7%. The square meter has a value close to 10 thousand, 9878 yuan. Over the last three months – July to September, the average price shows a slight increase, of 10,211 yuan, 10,448 yuan, and 10,063 yuan.
The average hides the reality of the largest cities.
In the leading group of Beijing, Shanghai, Guangzhou, and Shenzhen, we exceed 60,000 yuan. Even in second-tier cities such as Xiamen and Hangzhou, the average is over 20,000. As for the third and fourth categories, the 10,000 are close. Very few cities are below 5,000, mainly in the Northeast: Hegang and Shuangyashan in Heilongjiang, Shizuishan in Gansu, Tieling in Liaoning, Zhangye in Gansu. On the other hand, the vast majority of the prefectural cities 地级市 in the central-east have figures higher than six or seven thousand yuan. In Zhejiang, the threshold of 10,000 yuan is crossed. It is the only province that has such a high level for prefectures.
Apartment prices in China, 2015-2020 :
1998 to 2020, the average increased fivefold from 2,000 to 10,000 yuan.
The year 1998 is historic because it saw the housing reform’s launch with a policy to support homeownership for middle and high-income families. But compared to the growth of the economy, the national average is lagging. From 1998 to 2019, China’s GDP increased eleven-fold, the national disposable income per capita of urban residents increased eight-fold, from 5,425 yuan to 42,300 yuan. As for the M2 aggregate of the money supply, the multiplier approaches 20.
Real estate prices since 1998 :
The borrowing machine
In 2008, affected by the global financial crisis, real estate prices showed a general downward trend. Guangzhou, Shenzhen, Hangzhou have seen falls of more than 20%, and most of the 3rd and 4th category cities have seen depths. However, at the end of 2008, four trillion of the economic stimulus package boosted the economy, and the market, fueled by the credit floodgates, immediately started to rise again. This growth wave continued until 2011 when the government was forced to put in place measures to limit purchases (see article). In 2014, inventories were high. Very quickly, new actions, notably monetary easing, sparked a recent surge. Borrowing boosted sales.
The sector is divided into several segments, up or down. In addition to economic trends, many factors are playing a role in the future of the real estate sector: the aging of the working population, population movements southwards, certain cities with a housing surplus, the Northeast struggling to find a new development model, the emerging Chengdu-Chongqing center, and the urbanization of medium-sized towns. The golden age has undoubtedly passed! Real estate certainly still has a bright future.
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2 November 2020