The Wall Street Journal reported on March 28 that property prices are rising all over the world, whether in the United States, Europe or China, and that the property market was further boosted during the Epidemic by the government’s monetary easing policies and changes in consumer habits. Analysis by senior Washington media personality and current affairs commentator Shi Shan pointed out that the epidemic caused the construction industry to stop work, resulting in a reduction in supply; coupled with the government’s easing policy to stimulate the economy, it led to a large influx of capital into the investment market. The rise in housing prices reflects the shortage of investment tools, which Shi Shan described as “asset Inflation“, which is also reflected in the housing market, in addition to the stock market.
In 2020, property prices in the British and Australian regions rose rather than fell in the epidemic. (Epoch Times Tab)
The dilemma of stimulating the economy and stabilizing housing prices
Many countries are worried about the overheated property market, but they are caught in the dilemma of stabilizing property prices and stimulating the economy when formulating policies. On the one hand, governments want to keep interest rates low to help the economy recover from the epidemic, but on the other hand, people are burdened with high mortgage payments to buy homes, and Home prices may stagnate or fall later, the report said. In addition, the adoption of methods such as limiting mortgage applications is ineffective, and the government has postponed relevant policies to curb demand in order to maintain economic growth.
The newspaper quoted Karsten Biltoft, assistant governor of the National Bank of Denmark, as saying, “The 5 to 10 percent annual increase in property markets everywhere is clearly unsustainable in the long run.”
Data from the Organization for Economic Cooperation and Development show that house prices in its 37 developed member countries hit a record high in the third quarter of 2020 and rose nearly 5 percent for the year, the fastest rate of growth in nearly two decades.
In China, house price increases were also high in major cities. A senior Chinese bank official was quoted as saying that the authorities were reducing the risk of asset bubbles, but with little success. House prices in Shenzhen have risen 16 percent in the past year.
Rising property prices have prevented many families from buying homes, and young people are marrying later and having children later because of difficulties in home ownership. At one point last year, home prices in Seoul rose nearly 15 percent, and because low-interest mortgages in South Korea require more lenient personal income than couples, some people are choosing to delay registering their marriages in hopes of having an easier Time buying a home. In New Zealand, a young couple failed to bid on a property six times before finally buying a suite from a friend.
Record low interest rates and government support programs also put Australian house prices on track to rise at the fastest pace since the late 1980s, with ANZ economists last Wednesday (March 24) sharply revising up their house price forecasts, predicting a 17 percent rise in detached house prices nationwide by 2021.
The Sydney housing market will lead the way, soaring by 19%. With the median price of a detached home in Sydney already approaching $1.1 million, it is expected to see the biggest price increase since 2015.
Melbourne detached house prices are expected to rise 16% this year, the biggest single-year increase since 2010; Brisbane will see similar increases in detached house prices; and Perth is expected to see a 19% rise in detached house prices.
In 2020, house prices in the UK and Australia are expected to rise rather than fall in the epidemic.
The desire to buy a home with a loan is increasing
According to the report, the reason for buying a house is related to the low interest rate policy, because people can borrow money more easily. On the other hand, the epidemic has also led to a change in spending habits, with more people working from home and many families wanting to move to larger homes in the suburbs.
The demand for mortgage loans is very high, the report said. In Sydney, property prices are at record highs, while the increase in mortgage lending has overwhelmed banks. Christian Stevens, a senior credit consultant at mortgage broker Shore Financial, was quoted as saying that it used to take only a few days to process mortgage applications, but now it can take more than a month.
Even wealthy people prefer to take out loans to buy homes because of the low cost of loans. One young entrepreneur, Teun Kraaij, who bought a house near Amsterdam Beach, followed the advice of his bank advisor and took out a mortgage at 1.2 percent, even though he had the funds to make the full payment. He said, “It’s so worth borrowing money these days that it doesn’t make sense not to.”
Despite the big increase in mortgage lending, the report argues that the trend is unlikely to lead to a 2008-like global housing market crash, as most of the world’s is designed to meet real demand rather than speculative demand. The housing boom is likely to subside naturally as interest rates increase and pent-up consumer demand is met.
Housing Prices Reflect Asset Inflation
Isham, a veteran Washington media personality and current affairs commentator, said that in the Washington suburb where he lives, transportation is not too convenient. A neighbor wanted to sell his house, and he thought it would take a month to sell, but he didn’t expect it to sell the next day, and it was higher than the price he offered. A friend in real estate told him that the total number of used plus new homes on the market now is only 5% of what it was in late 2019 to early 2020 before the epidemic.
While various industries have stagnated under the epidemic, the real estate industry is the fastest to recover from the recession. The reason why there is an oversupply of housing, Isham analyzed, is that on the one hand, the epidemic caused the construction industry to stop work, resulting in a reduction in supply; on the other hand, the government’s easing policies to stimulate the economy led to a large influx of capital into the investment market. In the U.S., for example, last year’s $2 trillion and this year’s $1.9 trillion stimulus plans have caused a large amount of capital to enter the property market through the financial system.
The rise in housing prices reflects a shortage of investment tools, which Ishikama describes as “asset inflation,” not only in the stock market, but also in the housing market. Shi Shan said, “The core of capitalist society is capital, which first spreads out from banks and financial institutions, and the closer the sector to the core of capital, the more prices rise first, before spreading to ordinary people.” Real estate is a capital-intensive industry, with a close relationship with finance, the money first went to the stock market, the second wave is real estate.
From a microeconomic point of view, under the epidemic of CCP viruses (Wuhan virus and New Crown virus), in 2020, the people have less consumer demand, are unable to go out to travel and dine out, and have relatively low intention to buy cars and luxury. For the middle class, it is difficult to increase consumption when they have more money and thus put it into real estate.
The communist virus pandemic has increased the disparity between the rich and the poor in various countries. “The end result is the rich get richer. The richer you are, the more you increase the percentage of money you take to invest and the poor consume away. The rich man’s money into the capital market, assets rose, his assets continue to increase; and the poor consumed, the rise in assets and you have nothing to do.”
For the impact of the overheated real estate market, Shi Shan said it is difficult to predict the future development. He pointed out that if the economic structure is sound, I believe the problem is not too big, for example, the United States real estate to GDP ratio is far less than mainland China.
China’s housing market polarization
Shi Shan said, China’s housing market is polarized, the first-tier cities “North, Guangzhou and Shenzhen” rose particularly strong, the provincial capital cities are also rising. And for the many small cities, “many local prices are also rising, because the cost is rising, including low-cost cement, steel, because the whole inflation has begun.” However, these small and medium-sized cities “have prices but no market”, although there are many houses, but local people can not afford to buy.
Shi Shan once met a person from Yueyang, Hunan Province, in Hong Kong, who said that the local real estate price was 15,000 yuan per square meter, while the average worker could only earn 1,000 yuan a month, and even civil servants generally earn only 2,000 yuan a month. In other words, a year of work can only buy one square meter of housing.
According to the mainland media “First Financial” reported in December last year, Yueyang is one of the five cities with the lowest rate of increase in second-hand properties in the past five years, up 11.3% in five years, according to the National Bureau of Statistics of the Communist Party of China. The top two cities with the lowest rate of increase are both located in the northeast, with second-hand properties in Mudanjiang, Heilongjiang Province, 0.8 percent lower than five years ago, and Jinzhou, Liaoning Province, up 2.9 percent. The city with the highest rate of increase is Shenzhen, up 83.6% in five years.
Shi Shan analysis, the development of the property market and the local demographic structure and economic changes, if the local young people are less, there is less rigid demand. For example, economic development in the northeast stagnated, young people went out to work, and the population is aging, thus leading to low demand for real estate. On the contrary, big cities such as Shenzhen attract young people to come and work, so naturally there is a high demand for housing.
Writing in China Finance last year, the survey group of urban residents’ household assets and liabilities of the Central Bank of the Communist Party of China’s Survey and Statistics Department said that China’s urban residents’ home ownership rate reached 96 percent, the highest among the world’s major powers. Shi Shan noted that China’s homeownership rate is probably the highest in the world, indicating that overall rigid demand for buildings in China is not high in the future. Shi Shan said, “Among my friends, I haven’t heard of children needing to buy a house because mom and dad just have two or three suites, and each Family has just one child, and there’s no need for mom and dad to buy another suite for their children.”
At the end of 2020, Guo Shuqing, chairman of the Communist Party of China’s Banking and Insurance Regulatory Commission, wrote an article calling China’s real estate “the biggest ‘gray rhinoceros’ in terms of financial risks in China.” In the article, Guo mentioned that of the more than 130 financial crises in the world since the last century, more than 100 were related to real estate, and that currently, real estate-related loans in China account for 39% of banking sector loans, with a large amount of bonds, equity, trusts and other funds entering the real estate industry.
Shi Shan also pointed out that China’s real estate market has many potential crises and some “distortions”. Many buildings are vacant and cannot be sold, but the government does not allow the price of houses to drop, otherwise it will affect local finances.
Beijing may dominate the Hong Kong property market
In Hong Kong, since the British Hong Kong era, the Hong Kong government’s finances have depended on land sales revenue. Shi Shan believes that property prices in Hong Kong will not fall for the time being, especially in core areas with iconic properties, there will be northern water to continue to hold up property prices.
In addition, Shi Shan obtained information that Beijing plans to build a group of cheap housing in Hong Kong in the next few years, “by Chinese real estate companies, Chinese funds, with the cooperation of the Hong Kong government, to build a large number of cheap housing in the New Territories, even lower than the price of the sale of HOS, or low-cost housing.” Shi Shan said that the Chinese Communist Party believes that Hong Kong is unstable because young people do not have a home to live in. Recently, Vice Premier Han Zheng, who is in charge of Hong Kong and Macau affairs, instructed during the two sessions of the Chinese Communist Party to solve the housing problem in Hong Kong, and there was a trend of “landlord fighting” among the pro-communist faction in Hong Kong.
However, sources say that Beijing does not want to give this aura to the Hong Kong government, and that Beijing intends to take direct action to solve the housing problem after it takes full control of Hong Kong’s political situation, though not anytime soon.
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