OPINION> Commentary
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OPINION> Commentary
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Property sector needs to adapt to changes
By Yi Xianrong (China Daily)
Updated: 2009-01-12 07:31 The real estate industry experienced a very difficult year in 2008: descent of sales and prices, and rise of idle rates. The government is determined to link the real estate's role as a pillar industry to the efforts in answering residents' wish for improvement of living conditions. The aim is to increase the supply of (social) security-oriented housing, make it easier for residents to buy commercial housing for their own use and bring into full play real estate's positive role in boosting domestic demand. Demand for self-use housing is the driver of the country's property market and the foundation for healthy development of the market in 2009 and years to come. When property prices go down by big margins everywhere, there is basically nothing to gain from investing in China's real estate, with no hope of a rebound any time soon. There will be less investment heading to the real estate market in the foreseeable future. Since China's real estate industry has lost its role as a destination for housing investment, the country's property market is bound to turn from an investment-driven market to a consumption-driven one. About this kind of transition, the new housing policy recently laid down by the central government is totally clear. But such a transition has yet to materialize in the property market, as the housing prices in many local property markets remain high above the levels affordable to the majority of consumers.
The prices in a consumer-driven housing market are based on the basic income level of residents. There will be no consumption-driven property market if residents' basic income does not figure in the equation. And that is the cause of the problems in many of the country's local housing markets today. The central government has decided that the real estate market is basically serving residents' housing consumption demand and the aim of the development is to improve the housing condition of the whole population. Therefore, the development of the property market this year and beyond and their significance are linked to the consumption nature and the improvement of all residents' basic housing condition. The industry cannot be a pillar of the economy as long as the housing condition of the majority of residents remains very poor or the properties on the market only serve a small number of people as a tool of profiteering. The real estate industry can fulfill its role as a consumer market in two ways - as (social) security and a market. Security refers to the Comfortable Housing Project and heavy government investment in security-oriented housing developments. And as a market, it should make housing properties affordable to the majority of residents. To reach this goal, the government must ease residents' burden of buying houses by giving preferential policies,and the market prices should be adjusted or returned to rational levels so that the majority of residents can afford them, thus allowing the demand for residential housing to play its part. That means the property industry must adapt itself to the changed market environment and sell its residential units at rational and reasonable prices. Only in this way can the housing demand from the majority of residents be fully released. And in such a situation the property market cannot only sustain stable development and become a driving force behind China's economic growth but also prosper and play its crucial role in boosting domestic demand. Given the existing market environment and related policies, 2009 will see the nationwide rational adjustment of the real estate market and return of housing prices to rational levels, while the property market will begin shifting from investment-driven to consumer-driven mode. As the nation's property markets operate very much separately, the housing price adjustments and return to rational levels are bound to differ markedly from one city to another. Those that saw housing prices rising fast and widen early on will undergo such adjustments by relatively bigger and broader margins, while those that saw less drastic price increases earlier will need comparatively moderate price markdowns. The transition of the real estate market from investment-driven to consumption-driven is set to proceed and no one can stop it. Developers should adopt a proactive attitude toward this kind of changes instead of waiting for the government to introduce some policy to keep their investment-oriented pricing mechanism running to their desire, and re-position their property market prices. This is a step that property developers must take as the key to their return to prosperity. The nation's real estate enterprises will no doubt be able to break free of the present trap and move toward prosperity if they put their minds to it. Or they will only find themselves mired in growing troubles. The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences (China Daily 01/12/2009 page4) |
