1、2008Real Estate price analysis report2ContentExecutive summary1. Characteristics of the real estate industry .12. Supply.33. The effective demand for the real estate market53.1 Annual household income.63.2 GDPs impact on the prices of real estate 83.3 Demographic factors94. Real estate price analysi
2、s:.104.1 The correlation of the real estate prices and the economic factors 114.2 The effect of the aging population .144.3 Supply and demand framework .16Appendix 18References.21Executive summaryReal estate development in China is one of the most complicated issues in China. The real estate prices
3、for most of the time are not the result of the market forces but also the results of many of the political, economic and social factors. Since 1978, the Chinese government has started to reform the land and housing system, it is one of the national economic restructuring programs. By that time, most
4、 of the land use is still under state direct allocation and planning. The real estate market has just taken its form in 1993. Within 20 years time, the real estate market has experienced its fastest development than ever before. The real estate prices have risen for more than 900% than 20 years ago.
5、 Until 2007, the real estate market seemed to reach its highest end and suddenly starts to turn downward. In this report, we have done some analysis on the real estate market try to find out the factors that are affecting the real estate prices.In the first part, the problems about Chinas real estat
6、e industry will be explained to let us to have a first glance on the overall development of Chinas real estate market.In the second part, data about the supply of the land area and the construction of real estates is collected and interpreted.In the third part, data about the factors that are affect
7、ing the demand of the real estates is collected and interpreted. It includes the data of gross domestic demand, income level and the population.In the fourth part, the data of real estate price from the past 20 years were analyzed and interpreted. We have taken close inspection on the relationship b
8、etween the real estate prices and data collected in the first part and the second part of this article. We have also explored the impact of aging population on the real estate price and as we may conclude that with slow grow of the population in China; the growth of aging population will finally hin
9、ders the development of the real estate.11.Characteristics of the real estate industryThe real estate industry is a productive and management industry and has the same characteristic as the secondary and tertiary industries. It is characterized with three basic characteristics:1. Indivisibility betw
10、een housing and landThe real estate includes two parts: housing and land. The building bases on the land and their transactions have its own indivisibility.2. The laggard and vanguardOn the one hand, the real estate leads to the development of construction industry, forestry, materials, and financia
11、l services. It is the preconditions of expanding production and reproduction of these industries. On the other hand, when the economy recovers, because of the need to invest heavily in real estate, real estate recovery and development result from the increase in fixed assets. So it lags behind econo
12、mic recovery. And when the economy turns down, as the characteristic of maintaining and increasing the value of real state, some of the industrial and commercial funds will be shifted to the housing, making the real estate recession lag behind the economic recession.3. Risk and investmentThe real es
13、tate industry receives external factors and internal factors, such as the countrys political and economic developments, changes in the policy adjustment, changes in urban construction planning, etc., adding the investment decision-making, management and so on. However, because of the value-added, lo
14、ng-life real estate commodities hedge against inflation, it has is a large profit room for speculation.Problems about Chinas real estate industry1. The initial stages of developmentIn China, some provinces have various degrees of major issues, such as excessive investment in real estate, rapidly ris
15、ing housing prices, highlighted structural 2contradictions and market disorder in the real estate. 2. Low marketization degreeRegulations of land, finance, taxation, trading systems, related to real state, are not perfect enough. The real estate market gets inadequate information and lack of transpa
16、rency.3. Contradictions between supply and demandFrom the point of demand, real estate sales and marketing area increase year after year, reflecting a strong demand. The main factor of inclining demand derives from the raise of urban residents income, which brings to improve the demand of housing an
17、d upgrading the living environment. At the same time, the investment and speculative demand of some high-income people is also the other major factor to stimulate a strong demand for real estate. In addition, the housing demolition of urban construction has led to the passive real estate needs for t
18、he residents.On the supply side, the states tax and financial macro-control policy has been gradually tightening the supply of land. The rising price caused by the declining land area, brings about higher costs in land development and investment. This limits the supply of real estate. In addition, t
19、here are still structural contradictions between supply and demand. The low-cost, affordable housing and commercial housing which is less than 90 square meters, to address problems of low-income people, can not meet the housing demand of lower-middle class. All this has further boosted the prices.Th
20、e real state industry developed in China has just in its period of prosperity and development. There are a great many factors causing the fluctuation of housing prices. This is concerned about the vital interests of the residents. In this project, based on the characteristics of real state industry,
21、 we will focus on the relation between demand and supply. We analyze how economic factors-such as GDP-and human structure in China influence the housing price. We can figure out whether the real state lags behind or leads the economy. And then, we use the demand-supply model to elaborate how the lan
22、d and housing supply work on the price of housing. We aim to get a conclusion about how the housing price goes on in the future.32.SupplyWe will illustrate the supply in three different ways: the land used for construction, the investment in real state and the total housing area built each year, bes
23、ides the governments policy.Land market supplyFirst of all, we come to Figure 1. It can be seen from the left picture that the completed land area for housing rises stably, from 73,713,000 square meters in 1997 to 275,662,000 square meters in 2007. And the purchased land each year is rising more rap
24、idly than the completed ones, from 66,417,000 square meters in 1997 to 402,458,000 square meters in 2007. This shows that the governments land policy is turing from tighting the root to increasing the supply. It is also a sign that many companies are orgniazing their own plan to develop the real sta
25、te in the future. As a result, the housing industry will booms in the next decade. The growth rate can been seen from the following right picture. It is rising instably. Eniminating the year 2004 and 2005, the growth rate of the completed land and land to be developed is inclining slowly. This is ra
26、lated to governments policy, and also to the huge demand in the future. As the growth rate of land to be developed exceed the one of completed land from 2003 until now, there will be a great deal of things to do for the developers in the future, adding the big gap-139,178,000 square meters in 2007-b
27、etween the two of them.1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070.010000.020000.030000.040000.050000.0Completed land area(10,000 squaremeters)Purchased land area(10,000 squaremeters)41998 1999 2000 2001 2002 2003 2004 2005 2006 2007-31-11929496989109Growth rate of completedland area(%)G
28、rowth rate of land area tobe developed(%)Figure 1 various kinds of land area and the growth rate among two of themConstruction and development in real stateAs Figure 2 shows, the investment in real state is inclining fast, from ￥317,837,020 thousands to ￥2,528,883,730thousands. And the growth rate i
29、s also in its up stage to about 30 percent per year in 2007. It interprets that many companies believe that there is a bright future in real state, so they are investing in this industry in order to get a large profit in the future. There is no doubt that they will provide even more houses in the ne
30、xt decade.19971998199920002001200220032004200520062007050000000100000000150000000200000000250000000300000000350000000 Real stateinvestment(10,000)1998199920002001200220032004200520062007010203040Growth rate of real stateinvestment(%)Figure 2 Real state investment and its growth rateThe completed hou
31、se area each year rises stably, from 158,197,000 square meters in 1997 to 606,067,000 square meters in 2007. And the housing area under construction each year is steping up even more quickly, from 449,855,000 square meters in 1997 to 2,363,182,000 square meters in 2007. According to the trend of his
32、troy, it will be another increase in the next few years. It also shows in the following 5right picture that the growth rates of housing under construction and completed houses pace up and down between 15% to 25% mostly. And this number will remain at its level for a few years.19971998199920002001200
33、2200320042005200620070.050000.0100000.0150000.0200000.0250000.0300000.0Housing area underconstruction(10,000square meters)19981999200020012002200320042005200620070.05.010.015.020.025.030.0 Growth rate ofhousing underconstruction(%)Figure 3 Two kinds of housing area and their growth rateAs we can see
34、 from these three figures, they all illustrate that the next decade is a period when real state gets its own huge place to grow. There are indications that the growth rates of investment and completed house area will maintain the level of 30% and 10%. Adding that there is a huge reconstruction in Si
35、chuan province, the housing supply would go up to a level beyond our imagination. 3.The effective demand for the real estate market To understand the effective demand of the real estate market, it should grasp two key points: First, from the micro-economic point of view, it means that in a given per
36、iod of time consumers are willing and able to buy goods at each level of the price, which have the ability to pay. Second, from a macroeconomic point of view, the effective demand for commodities is the total demand when the total supply and total demand achieve the equilibrium. In other words, to a
37、nalyze the effective demand for real estate market it is necessary to grasp the demand which has the ability to pay 6from micro point of view. It should grasp the total supply and total demand equilibrium from macro point of view.The curve diagram shows that our housing price index and actual sales
38、of commercial housing area index curve over time, through the shape of the curve, we can see that Chinas rising demand for housing, especially in recent years, demand continues to rise, so to a certain extent, housing prices continue to rise.1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070200
39、4006008001000商 品 房 销 售 面 积 定 基 指 数 商 品 房 销 售 价 格 定 基 指 数需 求 与 房 地 产 价 格 的 关 联 性3.1 Annual household incomeWith regard to the relationship between real estate prices and household income, the academic community generally starts with the analysis of the utility maximization; its theoretical basis is a
40、s follows:Assuming all the consumers of the housing market in the pursuit of maximizing the residential life-long utility, and affected by other goods consumption, you can use the following function to express the assumption:Max U= u (H, C) dt0Constraint condition: H +C =Y Of which: r-annual discoun
41、t rate; t-time; P_h-housing prices; P_c-other commodity prices;After the use of Lagrange deduction and differential, the relationship can be expressed as follows:7=f(Y, H, C ) From the above function, we can see that the annual household income is an important factor that impacts on housing prices,
42、when buying houses, the house buyers are facing with the important question whether there is sufficient revenue to pay the amount required for the purchase. If using the form of mortgage, the purchase intention would be affected by the loan size and repayment ability, and these two factors are close
43、ly related to household income. At present, the important basis that the bank approved to apply for a mortgage is the applicants housing affordability, which is the purchasing power of buyers, and the measurement criteria, is annual household income. This shows that the annual household income has p
44、rofound impact on housing demand and price. Because there is no perfect system of annual household income statistics, so we used the average annual per capita disposable income in the place of the annual household income, the main difference between the two is that per capita disposable income does
45、not include medical, pension, provident fund, serious illness insurance as well as other funds. Therefore, there is a certain gap between annual household income and average annual per capita disposable income, it mainly affect the empirical results and comparative study among countries, But the emp
46、irical results is meaningful in it.1978198019851990199119921993199419951996199719981999200020012002200320042005200620070.02000.04000.06000.08000.010000.012000.014000.016000.0城 镇 居 民 家 庭 人 均 可 支 配 收 入 农 村 居 民 家 庭 人 均 纯 收 入城 乡 居 民 人 均 可 支 配 收 入 分 布 图83.2 GDPs impact on the prices of real estateBased o
47、n Chinas 1987-2004 annual time-series data, the only long-term and stable dynamic equilibrium relationship is between Chinas GDP and the price of real estate. In the long run, GDP has a significant impact on the real estate prices. In the short term, the speeding increase of GDP will easily lead to
48、the over-rapid growth of housing prices. Chinas GDP and the price of real estate are highly inter-activated. GDPs trend played a critical role for the rise and fall of real estate prices, GDPs volatility help forecast the trend of real estate prices; at the same time, the trend of real estate prices
49、 also reflects the overall economy trend.0501001502002503003501997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007商 品 房 销 售 价 格 定 基 指 数 100 103 103 106 109 113 118 139 159 169 193GDP定 基 指 数 100 106 112 122 134 146 164 192 219 252 295GDP与 房 地 产 价 格 的 关 联 性定基指数93.3 Demographic factors (1) population Real estate prices and the number of the population are highly correlated. When the population increases, the demand for real estate will rise and the real estate prices will go up. Vise versa, the size of the population diminishes, the
