Where will the real estate fire burn in mainland China?

Although the government has been alleviating the disparity in economic development levels between regions by strengthening investment activities in the northeast, northwest and the wider mainland, these investment activities may have helped to alleviate the economic pattern of a strong south and weak north in the short term, but their effectiveness is doubtful in the long term: first, as infrastructure and other infrastructure become increasingly saturated, the rate of return on investment decreases and the pulling effect on the local economy decreases; second, the recent Several years of fiscal surplus to deficit, and then the deficit is gradually expanding, so that the fiscal investment capacity to decline; third, the many factors that cause the economy to be strong in the south and weak in the north, part of the humanities and other intangible factors at play (which is likely to remain the decisive factor), financial investment does not change the gap in the soft environment.

In the end, the pattern of strong south and weak north will only deepen, as a result, the population, especially the young labor force will continue to migrate to the southeast coast, and even accelerate.

And real estate will always be a demographic behavior, which determines the trend of real estate. So, in the past two or three years we have seen the property market in Shenzhen, Dongguan and other places stay hot, while houses in places like Hegang in the northeast are sold at a cabbage price, and the Yongqing property market in the Beijing area is also discounted by 70%. 2020 is a year of super easy money, absolutely favorable to real estate, but some major cities in northern China (second-tier cities, most third and fourth-tier cities need not be mentioned) including Tianjin, Shijiazhuang, Zhengzhou, Jinan and other places The property market is sluggish and there is a year-on-year price drop. The cause of this phenomenon is clearly no longer financial, but rather demographic factors (but also economic employment and other factors) are at play. The change in the real estate environment can be clearly seen in the change in population numbers between the seventh census and the sixth census in the major cities of Northeast China.

Changes in the total population of major cities in Tohoku (Author’s blog)

Of the 21 major northeastern cities in the table, only four showed population growth in the seventh census compared to the sixth census, and 17 showed population contraction, with cities such as Qiqihar actually contracting by more than a quarter! And with population numbers shrinking throughout the three northeastern provinces, the real estate environment in the northeast is clearly deteriorating.

The famous demographer Yi Fuxian believes that the total population of mainland China has peaked back down in 2018. Some experts may not agree with Yi’s view, but most experts, after seeing the newborn data for 2020, will also believe that the peak of the total population of mainland China has already occurred, at least in the next few years. Also note that the highest birth rates in mainland China happen to be in economically developed regions such as Guangdong, Fujian and Zhejiang, while the birth rate in the mainland is lower than in the southeastern coastal regions. Under the squeeze of multiple factors such as population migration and very low birth rates, most cities in the mainland will be, or have been, caught in the dilemma of negative population growth.

Once the Inflation rate in the United States this year, as expected above and lead to an accelerated downward movement of property prices, under the pressure of multiple factors, most cities on the mainland will likely never again be able to see an effective recovery in real estate, real estate in these areas as an era is over – this is the cyclical nature of real estate, following the changes in population and change.

Conversely, real estate in first-tier cities, especially in the core of first-tier cities, is largely certain to have the potential to recover after a price hit because of its scarcity and thus its partial monetary function (meaning the function of storing wealth). The regional hubs along the southeast coast are also bound to see a recovery in the property market as they will also see new population inflows.

But in general, we are saying goodbye to the era of real estate (urbanization), and the future of China will be an era of economic transformation and upgrading.

Where is the biggest risk for real estate in the future?

After the real estate cycle in mainland cities, houses will lose their liquidity, and without liquidity houses will lose their wealth properties, but mortgages will not disappear, and at the same Time, more than 70% of residents’ wealth is reflected in real estate, and at this time real estate will turn from a wealth-creating factor to a poverty-creating factor in the past. The southeastern coastal cities still have liquidity in the property market, still has the wealth function, some cities will continue to promote the growth of residents’ wealth because of price increases, the value of each set of houses is up to millions or even millions. The direct result of such a division is the serious deterioration of the gap between the rich and poor residents of the southeast coast and the mainland, once the inflationary upside of the poor class will fall into a desperate situation, will threaten social stability. At this point, how will the government respond to such a situation? Will it adopt a nationalization policy or push some cities to implement real estate tax first in order to bridge the gap between the rich and the poor? This is the biggest variable in the future. In short, this serious deterioration of the gap between the rich and the poor must be solved, otherwise society will no longer be stable.

The risk of U.S. stocks is mainly reflected in the NASDAQ, stemming from the overvaluation of major stocks, while the risk of the Dow or relatively low, stemming from the fact that commodities are likely to have entered a new super-cycle, allowing cyclical industries to benefit greatly. The blue-chip stocks of the Dow, mainly from cyclical industries, will rapidly increase in valuation, forming an obvious hedge against the upward pressure of inflation on the Dow.

Long-term low inflation (low interest rates) will form an inflated asset price system, inflation (interest rates) is the knife that will bring it back to the ground when inflation bumps up, which is the constant rule.