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The Analysis of Chinas Housing Price Based on the Demand

ZHANG Yun, CHENG YapengCollege of Urban and Rural Construction, Agricultural University of Hebei, Baoding, 071001

[email protected]

Abstract: In the real estate market, housing price is determined by supply and demand. This article

mainly analysesthe reason of price rising from the demand angle.With regard to the housing demandcaused by the Urbanization and the housing speculation, the author gives her own suggestions.

Keywords: housing demand, housing price rising, speculation

1 Instruction

Along with the development of Chinas real estate market, the housing price also presents a rising trend.

Affected by the 2008 U.S. economic crisis, Chinese real estate industry has experienced an adjustmentstage.During that time, the housing price declined, but in the long run this decline is transient. Generally

speaking, in most of our cities

the housing price is still rising. According to statistics, in the first half

of the Year 2010, housing sales price continued to rise, but the growth number is not higher than before.

In June 2010, 70 cities housing sales prices rose by 11.4%, the number is 1.0 % lower than the number

in May.In June, the newly-built house prices rose 14.1% than the same time in last year, but 1.0 percent

lower than that in May in which month the price rose 0.4 %. During this period, The price of

economically affordable housing has a year-on-year rises of 1.1 percent , the price of Commodity house

has increased by 15.8 %, ordinary house price 15.2 %, high-grade house price 18.0%. second-hand

housing sales price rose by 7.7 %.

In face of the tendency of price rising

some Chinese scholars have done further research about the

factors that influence the real estate price. Yang Guizhong, Deng Xuefen use SPSS to model the trend of

house price tendency in Chengdu City. A model of multiple linear regression analysis is built, in whichthe house price is chosen as dependent variable, urban population and area of construction are chosen as

independent variables. Although GDP, average disposable income of citizens, fulfillment of investment,

area of construction,area of completion are initially chosen as independent variables, they do not pass

the significant test. Finally, analysis of this model is presented and a good after- simulation is made.

Based on the rough set and the influential factor of the price of real estate

Li Peng

Feng Yumei analyze

the influential factor of the price of real estate

they prove that the result they obtained is more

reasonable LUWei, ZHANG Zhi think that the pluralism and disequilibrium characteristics of housing

market can not be explained by the theory of general equilibrium.On the basis of dissipative structure

theory,the echelon allocation system of housing supply and demand is constructed with Chinese

characteristics.

Western economics theory thinks that the price of commodities is decided by the relation of commodity

supply and demand, and the real estate market is not an exception. Due to the particularity of real estategoods, such as the limited land resources and long period of the project construction, the inestic of the

real estate supply in short period. Compared with the supply , the demand of real estate has a greater

flexibility than the supply. So this article mainly analyses housing price from the perspective of market

demand.

2 The Analysis of the Reason for Price Rising From The Angle of Demand

2.1 Urbanization drives the Housing Demand

With Chinas urbanization process, the urban population in China are also increasing. Because of Our

large population base, even if there is a small town population growth ,it will bring a greatly increase in

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the number of urban population. According to statistics, in 1991 in China , the proportion of urban

population takes 26.94% of the total population, but in the end of 2008, the proportion is 45.68%

almost takes half proportion of the total population in China. This shows there is a rapid growth of urbanpopulation in recent ten years. During the process of the population growth, demand for residential real

estate will also increase. Therefore, the higher the urbanization level , the more demand for residential

real estate. Under the premise of the inelastic in supply, increased demand will produce a rise in

residential real estate prices.

Chart 1 Population Proportion Urban vs. Rural in China

From chart 1, We are easy to see the growth in Chinas urban population in recently 20 years. By the end

of 2008, Urban population has reached to 60667 million, urban population and rural population each

will almost takes half proportion of the whole countrys population . Obviously, this is a great pull for

urban residential housing demand the increase in demand will cause the rise in price.

Chart 2 The Average Sale Price of Residential Houses in China

The chart 2 shows that Our housing average sale price and the proportion of the urban population

present Similar upward trend. Our housing average sale price was 1790 yuan per square meter and the

price became 3576 yuan per square meter in 2008, Almost twice as much as that in 1997. In some

first-tier cities ,the house-price is far higher than the average selling price. According to the material

published by the Ministry of Housing and Urban-Rural Development , By 2015, Chinas urban

0

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3000

3500

4000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year

Yuan/persquar

metre

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1991 1993 1995 1997 1999 2001 2003 2005 2007 (year)

%

u r b a n r u r a l

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population will break eight million. In the meantime, the housing problem for about 2 million new urban

population needs to be solved .Under the condition of high inflation of urban population and urban area,

house prices will be certainly higher than the reasonable price that the foreigners think .Since theprocess of urbanization will not be slower than before in a long time, house prices will also be difficult

to fall.

2.2 Speculative Demand

Due to the particularity of house commodity, its characteristic value makes it become a selection object

for many investors. The purchase behavior based on the purpose of speculation greatly increases the real

estate demand, and this causes the housing price to remain high. In April of this year, the homebuyer

based on the real estate speculation swarmed into the real estate market, and many people made their

decision for purchasing house as they saw the house .In their mind , Once owned houses, it means have

money .

According to the reports, from 2007, Tianjin has built some new cities .Among these cities ,there is an

area named Hongkanlingshijun .This area is used for villas, and it is about 30 minutes to the center of

Tianjin by car .It is said the villas have already been sold up ,but there are only a few residents livethere ,which is to say the villas have a low occupancy rate. So, who are the buyer that buy the villas and

not live in ? Obviously, it is the buyers with the purpose of housing speculation . Their purpose is not to

buy for living needs, but to obtain profits by speculation. At the end of 2009 in China, many house

retailer found that in the housing trading volume the ratio of first home-buyers and the multiple

home-buyers is one to one .This means that first home-buyers and the multiple home-buyers stand on

the same start line contesting housing resources .The result is that the housing price is higher than

before .

Because of the joining of the speculators, house prices continue to rise. As a result ,the people who

really have the real demand for housing cant afford to buy the house. What is worse ,the houses

sometimes are not available for them. On the contrary , some people who do not really need the house

maybe own a lot of houses that they will never live in . The rich can make a lot of profit from this

money game ,but leave many social problems

a large number of people are disappointed at the society,vacant rooms are a waste of social resources, the huge housing bubble continues to accumulate the

financial risks

This calls the government and the relevant departments to formulate rules and

regulations strictly, combat the real estate market speculation, so we can ensure a home for everyone and

safeguard social stability.

2.3 Other FactorsHousing passive need brought by the old urban transformation has greatly increased the housing demand

in the city. With the accelerated process of urbanization and the intensity of urban transformation

increased, the work of dismantlment of urban housing goes into a rapid development stage. Everywhere,

especially the developed area, the scale of dismantlment of urban housing is expansing . Due to building

demolition, no matter how the economic strength of these households or relocated families, these

households have to buy new houses .Maybe ,buying new house is not in the plan of the year householdconsumption, even it is unwilling. To a certain extent, this passive demand for houses makes the housing

price higher.

In addition, consumer expectations of the rising price, the miniaturization trend of family size all

increase the housing demand in the urban. As a consequence, the increasing demand will lead to the

rising of the house prices .

3 Suggestions on How to Remit the Rapidly Price Rising

3.1 Rationally control the scale and the progress of urban building demolition

Urban demolition undoubtedly is an important way to change the citys appearance, but if the work of

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urban building demolition is done in the radical way, the passive demand caused by the urban building

demolition will be a serious blow on the urban real estate market. In the meeting of Standing committee

of state council on May 17, 2006, premier WEN jiabao pointed that we should rationally control thescale and the progress of urban building demolition, Slow down the rapid growth of passive housing

demand .

Therefore, when the local and national governments do the work of Urban demolition and old urban

transformation , they should work out measures to suit local conditions, increase management of the

relocation plan, rationally control the scale and the progress of urban building demolition. The

governments should avoid doing the work of Urban demolition blindnessly ,make a good job of

resettling the residents, rationally control the passive housing demand caused by the urban building

demolition, slow down the quickly growth of the passive housing demand. The purpose of these

measures are to avoid the upward trend in prices caused by the passive housing demand.

3.2 Curb the speculative demand for housing

Because of the narrow investment channel in our country, a lot of rich people become real estate

speculators. They buy houses in order to earn more money. The speculative behavior promotes thegrowth of the housing price .Therefore, the Chinese government and relevant financial regulators should

formulate severe measures in order to fight against speculative behaviour and to maintain price stability.

The Specific measure is: firstly, implement the real-name system for property buyers taking the family

as a unit. Secondly, carry out the System of progressive down payment proportion, the down payment

proportion should be improved to 30% 50% for the house buyers who are ready to buy the second or

the third house for their family. Thirdly, charge high individual income tax for the seller who want to

transfer the house after buying the house within five years, reduce the high profit of speculators,

effectively curb the speculative behavior.

Anyhow, the government should strengthen the supervision of the real estate market, increase the

effective supply of common commercial housing, increase the land supply for the rent and common

housing ,improve the efficiency of land use, carry out low-income housing projects on a large scale,

Suspend the construction for high-grade residential housing and strictly control its land-use scale,encourage home consumption, distinguish clearly the purpose of housing buying, whether to improve

the living conditions or only to make a good investment .The government must limit one family to have

more than one houses .The speculative behaviour should be restrained and attacked. The real estate tax

should be levied as soon as possible, effectively curb the speculative behavior for houses, let the real

estate market enter a virtuous circle.

3.3 guide residents to enter reasonable consumption track

In the Real estate market, consumers can buy houses by means of mortgage loan, and developers

advocate the importance of property for each family. It is just because of these directly or indirectly

publicity, together with the traditional family opinions, that make a lot of consumer buy houses ahead of

schedule. In China, some rich second generation own their own real estate at an early age on account

of the possessions from their parents

Some young working-class who havent enough money forhouses have to become house slaves

The overdraft of future housing consumption greatly promotes the

current demand scale. In recent years, the housing purchase decisions buying a house in one step or

as soon as possible tend to become more and more obvious.

Consumers whether choose to rent a house or buy a house, buy a big house or buy a small

house should accord to their own economic strength. In fact, for the wage-earning class, the house is

not the bigger the better, if the layout and structure is reasonable, Economy Residence is also a good

choice for the wage-earning class. With respect to the gradient consumption, Government should give

correct guidance to consumers in order to avoid a comparison between the consumers. In the other word,

it is to avoid the comparing phenomenon.

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3.4 Adjust Housing Supply Structure

Based on the situation of our country, the development of Small and Medium-size housing construction

must be a long-term strategy for the real estate industry. Small and Medium-size housing does not meanlow standard, low comfort. The key is to improve cost-performance ratio and the living quality. By

means of design, equipment and the handling of material, Developer can achieve the purpose of

comfortableness and health. Strictly in accordance with national regulations, in the new housing

construction projects , the building area of the houses under ninety square metres must reach at least

Seventy percent of the total development area .Strengthen the management of land resources, and

control the unreasonable rise of the housing price through the adjustment of land resource supply.

Government should strictly limit the land supply for the high-grade commercial housing, and supply

more land to the medium-priced commercial housing that built for ordinary people, and can also reduce

relevant tax of the medium-priced commercial housing. Recovery idle land

supervise and urge the real

estate project that has already been approved to start as soon as possible .Produce more low and

medium-grade residential commodity. The virtual high prices of housing will not only influence the

stability of a city consumption growth, but also will affect the long-term competitiveness of a city. The

low price of the economically affordable housing whose land grant fee is free ensures that the

low-income families can afford the houses ,and also the economically affordable housing stabilizes the

housing prices .Governments at all levels should further the cognition of the importance of the

economically affordable housing ,implement and improve the policies of the economically affordable

housing, adhere to the development of applicable housing for the urban and rural residents, supply more

low-priced houses,ensure that the measures are carried out effectively . If we follow the steps above ,we

can believe that in most of our cities ,the trend of price rising will be restrained.

References

[1]. Yang Guizhong, DengXuefen. Regression Analysis and After Simulation of House Price inChengdu City .Value Engineering . No.4,2007 :46

50 (in Chinese)

[2]. LI Peng, Feng Yumei. Analyzing the Influencial Factor of Price of Real Estate Based on RS.Journal of Hebei University of Engineering (Social Science Edition) Vol.24 ,No 2. Jun 2007:33

34 (in Chinese)

[3]. LuWei, ZhangZhi. Construction of Echelon Allocation System of Urban Housing Supply andDemand .Journal of Tianjin University (Social Sciences) Vol.9 No.5.Sep. 2007:452

454 (in

Chinese)

[4]. MosheB.N., Michael B., Yoel H.. The Market for Housing in Israel [J].Regional Science AndUrhan Economics

1998

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