The chief editor of one of China’s leading financial news publications says that the implementation of reforms to the urban rental market will serve as a key factor in determining the fate of the fraught Chinese housing sector, and even the country’s long-run economic performance.
In an editorial piece entitled “Joint Undertaking of Rental and Sales Decides Rise and Fall of Housing Market” (租售并举决定房地产业兴衰), Caixin chief editor Hu Shuli notes that the Chinese government has decided to focus upon the expansion of the rental market in key urban centres to deal with increasingly constrained housing supply.
On 18 July, a total of 9 of China’s central government departments jointly issued a new directive pushing for the accelerated development of housing rental market in those large and medium-sized cities experience net population inflows.
According to Hu the Chinese real estate sector is becoming increasingly aware of the factor that the “model of buying land to build houses has basically come to an end,” prompting property giants such as Wanke to unveil new targets for the development of long-term lease apartments.
In Hu’s opinion the development of the home rental sector in China is in a severely laggard state, and is one of the key causes of problems with China’s housing market.
“China’s home leasing ratio is only around twenty percent, while in developed economies it’s as high as fifty to seventy percent,” wrote Hu. “China’s owner-occupied ratio has long been above 70%, far higher than developed countries.
“This type of market structure, combined with ‘land financing’ by the government, has enabled abnormally high housing prices to become a severe social problem.”
Hu also contends that structural reform of the housing market will play a key role in much-needed adjustments to the broader Chinese economy, that will reduce risk levels and heighten its long-term viability.
“The Chinese economy has long-been excessively reliant upon real estate,” writes Hu. “It is one of the three main constituents of fixed-asset investment, and has a pronounced impact upon numerous sectors including steel, construction materials, machinery and household appliances.
“Economic growth which is excessively reliant upon real estate is unsustainable, and suffers from huge financial and social risk…deepening housing market reforms has long been awaited by society, and has a broad base of popular support.
“Additionally, fist half economic growth in 2017 was stable, and can moderate the economic pain brought by housing reforms.”
While expansion of the housing rental market help to cure problems with the property sector as well as the broader economy, Hu says that the market still retains a “wait and see” attitude, given the fact that similar efforts a decade ago ran aground.
“People still remember that in 2007 the State Council issued its ‘Several Opinions on Resolving Housing Difficulties of Urban Low-income Families,’ for the further establishment of a health low-rent housing systems in the cities,” wrote Hu.
“Because of the entrenched position of government land financing, forceful preparatory measures were repeatedly delayed and failed to appear, relevant land supply was insufficient, and housing prices underwent surge upon surge.
“Whether this adjustment of the broader direction of the property sector can resolve pressure on the housing market…will test the sincerity and resolve of the government.”
In Hu’s opinion, however, the test of one of immense import for Beijing, as it will “determine the rise and fall of the real estate sector, as well as have an impact upon China’s economic future.”