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The growth secret through housing path

The “Donya- e-eqtesad” newspaper examined that how China makes opportunity of real estate recession
Guaranteeing the economic growth in China by regulating housing market’s floating through 5 financial instruments

The growth secret through housing path

Donya-e-eqtesad: A country’s experience in exiting “the housing recession like Iran’s real estate market” shows that if the recession resource is identified and is exactly resolved, the housing and building sector can become a driving motor for other sectors even in oversupply state and can guarantee the economic boom. The china government has recently based its priorities for economic plans on “making opportunity of housing recession in order to grow the economy” by this recognition that “not selling the large size and high cost houses” has caused a drop in purchasing transactions and a declining in construction investments and for this purpose, it has implemented five soft financial policies to boost applicants’ purchasing power and stimulate constructors. The most important policies is lowering the interest rate for constructing and purchasing house loans. Simultaneously, the purchasing loans power has increased from 70 percent of house average cost to 80 percent for the first time homebuyers and 50 to 60 percent for the second time home buyers. Also the duration of loans paying off period has become 30 years in order to increase the community of effective demand. The China has one of the largest markets for mortgage loans. The excess units must be sold without rising in price, the China’s economic experts have declared to confirm “to start the housing boom by the government intervention” to continue the initial boom.

Donya-e-eqtesad-Bahar Fardnia: reflecting the China’s recent policies to stimulate the housing sector to “more transact and construct” in this country canceled the “impasse of housing market exiting the recession Type II” hypothesis. Recently one of China’s key programs in providing low price housing known as “participatory modernization of old buildings into the cities as sectional has become the Iran’s pattern, China has recently begun some actions to boost housing that their orientation guarantees “economic growth” in this country. On the one hand, “excess supply” of large size, high cost and sometimes luxurious houses in China has declined the housing applicants’ purchasing power and on the other hand has deprived the constructors’ new constructions power and the outcome pf these two events has led to forming the recession Type II in this country’s housing market. Usually occurring this type of housing recession makes the governments planning for ending way difficult and complicated in comparing with recession Type I that occurs because of low supply against demand and thus rising price.

The recession Type II that has also been stable over the last 2 years in Iran, it has been followed two policy views that are different from each other to stop the recession. One view is that although the housing sector has a strong old connection with other economic sectors and its boom will cause producing and moving at least 100 industrial and service fields but because there are buildings that are excess of demand, stimulating the housing sector is ineffective and does not lead to economic growth. But the second view about “the housing recession Type II” stresses applying the new and non-traditional policies to achieve the housing boom this means that if a new policy is applied to deal with the new source for housing recession, this sector also has the ability to drive the whole economy. The China government’s experience in this regard, in addition to confirming the second view, has also revealed the economic growth’s “secret” through housing path even in the housing recession Type II conditions.

Five floating soft financial policies has been implemented to regulate the large cities’ housing market and interurban market, too in this country so that a set of unsold residential buildings in recent years as “the housing sector’s priority problem” have ability to are purchased by applicants and following that the construction is boomed. Due to significant contribution of the housing sector in gross domestic product and forming the fixed capital (both about 15%), the China’s economic officials regard high fluctuations in this sector as “a threatening for whole economy” and regard its moving as “ensuring economic boom”.

This importance degree of housing sector in China, has caused five regulating housing market policies to be reviewed by officials every two years and the policies to be changed according the recession and boom periods. Now boosting demand financial power including “first time home buyers” “second time home buyers” has put on the agenda to deal with the housing market recession Type II in China and in first launch to realize these two policies, ratio of the housing buying facilities toward house price has increased from 70 percent in past years to 80 percent. Also the second time home buying loans power has reached to 60 percent and the payment priority has assigned to new apartments.

Also declining the house constructing and buying loans interest rate is the China’s third policy to stimulate both demand and supply that this matter has caused occurring initial indications for construction boom. Also changing paying off duration of loans is the Chinese officials’ economic policy to make house purchasing loan attractive that now this duration has increased to 30 years to facilitate getting loan by applicants by lowering monthly payments for loans. However, the China’s government officials have also imposed an interurban financial policy in the housing area to regulate large and small cities’ population that includes “difference in amounts of constructing and purchasing loans between urban areas”. This difference has caused the single-families or low-incomes to be directed to middle and small cities to provide house. Meanwhile, the stability condition for newcomer boom in China’s housing market is stabilization sales price of excess supply and avoiding its increasing so that the transactions’ engine can be heated and can be driven perpetually.

The “Donya-e-eqtesad” reviews shows that: China has one of the largest mortgage loans market as compared with the different countries and for this reason, it widenings the facilities injection path to housing applicants in the recession periods. The ratio of amount of paid loans for purchasing house to gross domestic product is about 56 percent in China. This country has stood in the third place in “highest growth rate for paid loans in the housing area” among the countries in the last year so that the amount of paid 15 percent loans increased than a year ago, while the ratio of mortgage market to gross domestic product is 66 percent in the united states, the facilities growth rate did not exceed of 10 percent. A significant portion of housing credit resources in China is provided from primary loans processing and discounting the previous borrowers’ commitments from the financial institutes. This method is used as secondary mortgage market in many countries to quick achieve the long term facilities in the housing- shorter than loans paying off period-. The ration of mortgage market to gross domestic production in Iran as an indicator that expresses the dimensions and efficiency of the housing loans market, was about 20 percent in 2014 that of course a part of that was due to Mehr housing project’s loans not due to house purchasing loans.

China’s experience in housing market boom

China government has caused creation a positive outlook and growing on the housing market especially in the large Beijing, Shanghai, Shenzhen and Guangzhou cities by using unsold houses reduction policy. Reducing house purchasing initial prepayment and reducing the house construction and purchasing facilities interest rate is including China government’s actions to boost housing. Now many people prefer purchase a second house instead of put their money in the bank. In fact, China is reducing the unsold houses list in the real estate market. But some properties with large sizes in the large cities are not yet sold due to high prices.

According to Wall Street Journal, the prosperity and revival indications are seen in this market after 2 years economic recession in China’s housing market. The housing activists has become desired to again construct strangely and the house developers has requested of lending companies to introduce them the construction project in Shanghai. The house selling has risen about 61.4 percent than the last year in the first four months in 2016. Also investments in the housing sector increased 7.2 percent and beginning to construct increased 21.4 percent.

One of more construction boom indications is 4.7 percent increasing in land price in 105 China’s cities in the first quarter of this year. But according to economic experts, the house selling price must remain below market price in order to begin the constructions so that the excess houses to be sold and the construction growth to be turned back on main procedure. Increasing the house price causes short-term economic growth but in the long term it will cause reducing the house selling and bankrupting of the construction activists. According to Forbes, the reason that China’s housing market can restore itself regularly is because of being the central government and local governments at the center of affairs. They keep the housing market heating at the moderate temperature and prevent bursting of the housing bubble that is still discussed about its existence by having authorities such as supervising on the lank market to construct, the financial aids to develop, assigning the house loans and tax rate rules. But the government knows 15 percent contribution of the housing market in gross domestic production, 15 percent contribution of investment in fixed assets, 15 percent contribution in create jobs and 20 percent contribution in all bank loans as an enough reason for this level of control on the housing market. Also the people know that the government support the real estate market and if the housing market collapses, all China’s economy will be in great bankruptcy danger. According to experts, China government keeps the housing market balance by controlling 5 various parts every two years. China government controls the housing market by increasing the loan interest rate for house constructors and purchasers in the conditions that the housing market requires to control the price bubble and restrain capital purchases and in the conditions that the housing market requires increase the growth, also the China government makes the housing market hot again by assigning the ideal interest rates.

China is among the countries with the highest rate of homeowners. About 90 percent of people are homeowners in China and all house purchasers own under the government supervision. When the buying and selling house condition is constant. Those who purchases house for the first time, they should prepay to 30 percent of house price initially and if they purchase house for the second time, they should prepay to 40 to 50 percent of house price initially. According to conditions, if the buying and selling market is hot, the prepayment amount will be higher and if the market becomes cold, they should prepay less than 20 percent of house price initially.

China’s economic officials have recently applied 5 monetary, financial policies to boost the house purchasing demand in this country’s banking and tax system with this belief that mobility in the housing and building sector will cause the country’s economic growth that the most important policy is facilitating the payment path for the house purchasing loan by reducing the loans interest rate and also by reducing the required level to deposit in the housing savings account. The payer banks for the house purchasing loan that offer loans with a repayment period maximum 30 years up to 70 percent of house price, now they have even changed the loan payment regulations for the second house in favor of this group of applicants to simplify the selling possibility for new empty houses. Also China government has reduced the minimum deposit that is required to get the second house purchasing loan and some of local governments have revoked the house purchasing restriction.

China government has made limitation for each city’s residents about the house purchasing number due to the housing market and to that city’s condition. For example, it is not allowed to purchase house more than two numbers in Shanghai. Of course, these restrictions can be changed due to the market fluctuations like other laws. The investment options in China are limited for investors by government. The bank interest rate that is less than inflation has caused streaming the investors toward the housing market. The housing market usually has one of the highest return rates in the world. China government doesn’t impose any limitations on the house price growth in the large cities to maintain the demographic balance, the cities where people tend more to live in there because of facilities.

On the other hand, the government will reduce the house price in the small cities where they have still ability to improve and business start-up by controller tools. As a result, people especially young and new graduates have to go to these cities in order to purchase house and this matter also causes those cities’ boom and reduction of population density in the capital.

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