Future of real estate industry

(China Daily)
Updated: 2007-12-22 11:13

Whether China's real estate industry is at a turning point depends upon three factors - migration of farmers, urbanization and lack of investment channels, says a signed article in the China Business Report. The following is an excerpt.

This winter, neither property developers nor property purchasers have had a good time. Vanke, the largest housing developer in China, was the first developer to lower the price of houses recently. Wang Shi, chairman of Vanke, also claimed that China's real estate industry was at a turning point. Many other developers agreed with Wang and house prices in first-tier cities like Guangzhou and Shenzhen started to drop.

Does this mean China's real estate market has reached a turning point?

At present, the government has been strictly regulating the real estate industry. What the public cares about most is not whether real estate developers can weather these tough regulations. They care about their own homes. For those people who haven't bought houses, they want to know when they can buy a home of their own at a suitable price. Previous experience told them that the more the government regulated the real estate industry, the more expensive houses would be.

Meanwhile, those who have already bought their own homes want to make sure whether the government can really protect their assets from shrinking in value.

As for the future trend of China's real estate industry, three factors must be taken into account. The first is gross domestic product. If China's economy can maintain annual growth of 7 to 8 percent, China's real estate industry is sure to attract a lot of purchasers. The second is urbanization.

As long as China continues to allow farmers to migrate to cities, their need for homes is huge. What's more, a great number of university graduates need to buy houses as they merge into city life every year. That's why Feng Lun, another property mogul, joked that it is unmarried young women that push up housing prices for they usually want to marry men with houses; if we strictly stipulate that house purchasers must be above the age of 35, the need for houses would shrink.

Thirdly, China lacks channels for investment. If a Chinese person earns money, stocks and houses are the only two things he or she may buy. It's unlike foreign countries where various financial products are available. If the above three assumptions are true, China's real estate industry will continue to have a bright future.

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