Experts: Residents' housing purchase pressure has been greatly alleviated and the value of real estate investment has gradually emerged
2024-08-04
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With the decline in housing prices and the annual increase in residents' disposable income, the pressure on residents to buy houses is being effectively alleviated. Hua Shao/GraphicOn the one hand, residents' income is growing steadily, while on the other hand, housing prices are falling. Between the rise and fall, the pressure on residents to buy houses is being effectively alleviated. The substantial reduction in mortgage interest rates, as well as policies such as housing subsidies and tax exemptions have further reduced residents' housing costs.。Su Zhiyong, Institute of Urban and Regional GovernanceIn recent years, my country's real estate market has experienced cyclical adjustments, with residential sales area falling by nearly 50% from its peak, and housing prices in most cities also experiencing deep adjustments, with an overall correction of more than 25%. With the decline in housing prices and the annual increase in residents' disposable income, residents' housing purchase pressure is being effectively alleviated.The housing price to income ratio is an important indicator that reflects the pressure on residents to buy houses. In mid-2019, we conducted a statistical analysis of the housing price to income ratio in 35 typical large and medium-sized cities. Five years later, we reviewed this indicator again with the same caliber. The results showed that the average housing price to income ratio of 35 large and medium-sized cities has dropped from 16.03 in 2019 to 11.87 this year, an overall drop of 26%. This indicator change also further confirms the objective reality that the pressure on residents to buy houses is being effectively alleviated.━━━━
The housing price-to-income ratio has dropped significantly
Residents' housing purchase pressure is effectively alleviatedIn mid-2019, we analyzed the housing price-to-income ratio of 35 large and medium-sized cities (4 municipalities + provincial capitals + cities with independent planning status). The results showed that the average housing price-to-income ratio of the 35 large and medium-sized cities was 16.03. Shenzhen, Beijing, Xiamen, Shanghai, Fuzhou, Tianjin, Guangzhou, Hangzhou, Nanjing and Qingdao ranked in the top ten, among which Shenzhen and Beijing had housing price-to-income ratios of 39.76 and 34.54 respectively. According to the internationally accepted housing price-to-income ratio standard, the reasonable range should be between 6 and 7. Except for Yinchuan, all the 35 large and medium-sized cities included in the statistics exceeded this standard range. Although my country is at a different stage of social development from mature developed countries and cannot be simply compared with international standards, this data also generally reflects the reality of residents' housing purchase pressure.Five years later, the real estate market has undergone a deep adjustment. We once again analyzed and compared the housing price-to-income ratio of 35 large and medium-sized cities with the same caliber (for the sake of comparison, we still use the per capita housing area of 36.6 square meters as a reference indicator). The results show that the housing price-to-income ratio of most cities has declined significantly, and the average housing price-to-income ratio has dropped from 16.03 to 11.87, with an overall decline of 26%. The statistical results show that the top ten cities in terms of housing price-to-income ratio are Shenzhen, Shanghai, Beijing, Xiamen, Guangzhou, Hangzhou, Tianjin, Fuzhou, Nanjing and Haikou. From the perspective of city distribution, they are all developed cities in the east. Although the housing price-to-income ratio is high, these cities are supported by industry and population, and the market has strong purchasing power.Judging from the changes in the house price to income ratio over the past five years, the most obvious decline was in Qingdao, where the house price to income ratio dropped from 18.35 in 2019 to 9.61, a drop of 48%; the declines in Taiyuan and Guiyang also reached 40%, with Taiyuan dropping from 13.44 to 8.07, and Guiyang dropping from 10.55 to 6.29.Among second-tier cities, the housing price-to-income ratio in cities such as Nanjing, Fuzhou, Ningbo, Nanchang, Shijiazhuang, Zhengzhou, Jinan, Chongqing, Dalian, Lanzhou, Harbin, Changchun, and Hohhot all dropped by more than 30%. Among first-tier cities, Shanghai's housing price-to-income ratio dropped the least, at only 1%, indicating that Shanghai's housing prices remain strong and have almost kept pace with residents' disposable income; Shenzhen, which ranks first in housing prices, has seen a 13% drop in its housing price-to-income ratio compared to five years ago, but still tops the list with a value of 34.63; Beijing's housing price-to-income ratio has also dropped by 25%, dropping from second place in 2019 to third place.In 2019, only six cities had single-digit house price to income ratios, while this year the number of cities reaching single digits has reached 18. Among them, the house price to income ratios of Yinchuan, Hohhot, Urumqi, Changsha, Guiyang, Shenyang and Changchun have fallen into the internationally accepted standard range (between 6 and 7).In fact, we only counted 35 large and medium-sized cities. If the statistical scope is expanded to all prefecture-level cities, the average housing price-to-income ratio will be further lowered. With years of deep adjustments, housing prices in most third- and fourth-tier cities have been adjusted in place or even oversold. For example, in the three northeastern provinces, even in the three provincial capitals, the housing price-to-income ratio is only between 6.45 and 7.31. The housing price-to-income ratio in Hegang is only 2.48 (the disposable income of urban residents in 2023 is 28,700 yuan, while the housing price is shown as 1,948 yuan/square meter), which is far below the internationally accepted standard value.The significant decline in the housing price-to-income ratio is due to the decline in housing prices in recent years and the steady growth of residents' disposable income. In 2018, the per capita disposable income of urban residents nationwide was only 39,300 yuan, and this indicator reached 51,800 yuan in 2023, an increase of 31.8% in five years. In terms of housing prices, according to data from China Housing Price Market Network, the median housing price in the country was 1.3 million yuan five years ago, and the current median housing price has dropped to 1.2 million yuan. On the one hand, residents' income is growing steadily, and on the other hand, housing prices are falling. Between the rise and fall, the pressure on residents to buy houses is being effectively alleviated.━━━━
Policies continue to be favorable
The cost of buying a house is significantly reducedWith major changes in the supply and demand relationship of real estate, my country's real estate regulation has also shifted from the previous "tightening" to "easing", especially the policies on the demand side have been continuously optimized.On April 30, the Political Bureau of the CPC Central Committee proposed for the first time to coordinate the study of policy measures to digest the existing real estate and optimize the incremental housing; on May 17, the central bank issued a number of new mortgage policies, including lowering the down payment ratio to 15%, canceling the national mortgage interest rate floor, and launching affordable housing refinancing. On June 7, the State Council Executive Meeting proposed to fully understand the new changes in the supply and demand relationship in the real estate market, meet the people's new expectations for high-quality housing, and strive to promote the implementation of the policies and measures that have been issued; on July 30, the Political Bureau of the CPC Central Committee further emphasized that it is necessary to implement the new policies to promote the stable and healthy development of the real estate market, adhere to the combination of digesting the existing stock and optimizing the incremental, actively support the acquisition of existing commercial housing for use as affordable housing, further do a good job in the work of ensuring the delivery of housing, and accelerate the construction of a new model of real estate development.More than 600 loose real estate policies were introduced in 2023. Since the beginning of this year, policies have continued to be strengthened. As of now, more than 500 policies have been introduced, and the policy environment has reached the most relaxed stage in history.First, restrictive policies are gradually withdrawn. In the tightening cycle of real estate regulation, restrictive policies such as purchase restrictions, sales restrictions, loan restrictions, and price restrictions have become the main tone of regulation. As the market supply and demand relationship undergoes fundamental changes, these restrictive policies are exiting the stage of history. So far, more than 50 cities have lifted or relaxed purchase restrictions. Except for some areas in Beijing, Shanghai, Guangzhou, Shenzhen, Sanya, Haikou, Tianjin and other places, all cities in the country have fully lifted purchase restrictions.In addition to loosening the purchase restriction policy, the sales restriction, loan restriction and price restriction policies are also being gradually lifted in the process of optimizing real estate regulation policies in various places. In particular, on July 31, Zhengzhou City took the lead in announcing the cancellation of the price guidance for commercial housing sales. This also means that the right to adjust prices will be given to developers. With the establishment of a "market + guarantee" housing supply system, commercial housing will completely return to the market.Secondly, the loan interest rate has been lowered, and the cost of buying a house for residents has been reduced. Five years ago, the LPR benchmark interest rate was 4.85%. Affected by the purchase restriction and loan restriction policies, banks in various places have increased the interest rates for the first and second sets of mortgages. The national average interest rate for the first set of mortgages is 5.38%, and the interest rate generally increased by 5% to 20%. The interest rate for the second set of mortgages generally increased by 10% to 30%. After the LPR reform in August 2019, mortgage interest rates have fallen 9 times so far. On February 20 this year, the LPR for more than 5 years was lowered by 25 basis points to 3.95%; on July 22, it was lowered again by 10 basis points to 3.85%.After this round of interest rate cuts, the 5-year mortgage rate has once again hit a record low. Taking the four first-tier cities as an example, the latest mortgage rates in Beijing, Shanghai, and Shenzhen are adjusted to 3.4% for the first set and 3.8% (within the Fifth Ring Road)/3.6% (outside the Fifth Ring Road) for the second set in Beijing; 3.8% (urban area)/3.6% (Lingang New Area of the Free Trade Zone, Jiading, Qingpu, Songjiang, Fengxian, Baoshan, Jinshan) in Shanghai and 3.8% in Shenzhen. The latest mortgage rate in Guangzhou, which has abolished the interest rate floor, is adjusted to 3.1% for the first set and 3.7% for the second set. The first mortgage rate of some banks in Guangzhou, Foshan, Suzhou and other places is even as low as 2.9% or 2.95%.Compared with the mortgage interest rate level five years ago, the decline has reached or even exceeded 2 percentage points. Based on a loan of 1 million yuan and equal principal and interest payments for 30 years, the interest expenditure has been saved by at least 200,000 to 300,000 yuan.Not only have loan interest rates been lowered, but local policies have also included housing purchase subsidies, tax and fee reductions and other preferential policies, further reducing home purchase costs for buyers.━━━━
Rising rental-to-sale ratio
The value of real estate investment is gradually emergingHousing prices across the country have entered a downward cycle, but rents have not changed significantly. According to data from China Housing Price Market, the median rent across the country will be 2,000 yuan in 2023, the same as in 2019. Rents in some first- and second-tier cities are still on a steady upward trend. The top five cities in terms of rent are Beijing (120.95 yuan/square meter), Shanghai (107.43 yuan/square meter), Shenzhen (97.47 yuan/square meter), Hangzhou (65.25 yuan/square meter), and Guangzhou (60.4 yuan/square meter).Judging from the sale-to-rent ratio (house price/annual rent) of 35 large and medium-sized cities, the average sale-to-rent ratio is 42.83. Converting this value into an annual rental yield is about 2.33%. This level has outperformed the one-year deposit rate of major commercial banks (1.75%). Based on this calculation, the rental yield in Urumqi can reach 3.7%, and the rental yields in Changchun, Harbin, Wuhan, Xining, Shenyang, Guiyang, Chengdu, Lanzhou, Changsha and other cities are also above 3%. Among the 35 cities included in the statistics, 26 cities have rental yields of more than 2%, and even in Beijing, a first-tier city, its rental yield can reach more than 2%.Under the background of the regulatory policy of "housing for living, not for speculation", the investment attribute of real estate has been gradually weakened. However, as immovable property, real estate is not only a place to live, but also an investment product for residents to seek asset value preservation. At present, bank deposit and loan interest rates have definitely entered a downward cycle. Even for ultra-long-term 30-year government bonds, the coupon rate is only 2.57%. It will be increasingly difficult to find investment products with stable returns in the future, and the investment value of real estate has begun to gradually emerge.(This article was published in China Real Estate News on August 5, Page 11. Editor: Su Zhiyong)
Editorial Board Member on Duty: Li HongmeiProcess Editor: Wen Hongmei
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