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The fluctuations of house price will always tug at the sensitive nerves of the netizen.Above all, every change of the house price has an effect on common people’s life.

But do you know? Small as the house may seem to be, its influence is quite far-reaching and goes far beyond the above-mentioned fact.

How much does real estate contribute to the economic development? The higher the house price is, the more beneficial it is to the economic development? Which cities are at the highest risk in terms of real estate market?

Recently, Chinese Academy of Social Sciences and The Economic Daily jointly released “The 17th Report about the Competitiveness of China’s Cities (Keynote Speech)”, which answered these questions in detail.

To avoid more verbiage, our editor will help you to make sense of these esoteric questions.

1. How much does real estate contribute to China’s economic development?

For many years,the real estate has made up more than 10% of GDP.

In the process of urbanization, the sector of real estate has gained ground incessantly. Since 2000, the investments in real estate development have always made up more than 15% of the whole society’s investments in fixed assets.

In terms of the contribution to economic development, the percentage of real estate development has fluctuated from 2000 to 2013, but has remained above 10% for many years.

It can be seen that real estate plays a very important role in the economic development.

2. The higher the house price is, the more rapidly the economy will develop?

Don’t misunderstand! The truth is not like that!

In fact, the real estate can either exert the positive effect by boosting the economic development or exert the negative effect by decelerating the economic development. 

When the house price is at a reasonable level, the positive effect of real estate on the economic development prevails over its negative effect. In this case, the development of real estate is beneficial to the economic growth; When the house price is too high, the negative effect of real estate on the economic development will prevail over its positive effect. In this case, the development of real estate will go against the economic growth.

Therefore, a higher house price is not necessarily more beneficial to economic development.

3. Where is the inflection point between the positive effect of real estate on the economic development and its negative effect on the economic development ?

The inflection point appears when the “House Price to Income Ratio” is 9!

The “House Price to Income Ratio”refers to the ratio between the house price and the annual income of an urban family.

As is suggested by the result of calculations and predictions, the positive effect of real estate on economic growth will become weaker continuously with the increase of “House Price to Income Ratio”, and its negative effect on economic growth will become stronger with the increase of “House Price to Income Ratio”. At the inflation point, the “House Price to Income Ratio” is around 9.

In other words, when the “House Price to Income Ratio” is higher than 9, the negative effect of real estate on economic growth will overweight its positive effect.

4. In comparison with the international market, what is the level of China’s house price?

China’s house price is higher than that of the main international metropolis.

From the perspective of “House Price to Income Ratio”, the “House Price to Income Ratio” of the main metropolis in China is higher than that of the main international metropolis. There is a sign that house-price bubbles may be arising. 

Among the 10 cities whose “House Price to Income Ratio” ranks as the highest in the world, 8 cities are in China. Among the 20 cities whose “House Price to Income Ratio” ranks as the highest in the world, 16 cities are in China. Among the 40 cities whose “House Price to Income Ratio” ranks as the highest in the world, 20 cities are in China.

The “House Price to Income Ratio” of Beijing, Shenzhen and Shanghai ranks at the first three places in all the main metropolis at home and abroad.

It can be seen that many of China’s cities should take measures to inhibit the overheat of house prices.

5. What’ s about the society’s investments in the real estate in recent years?

As for the investments in real estate, the enterprises’ enthusiasm  has been running high!

On the one hand, a large part of the social capitals and bank loans has been invested into the sector of real estate; On the other hand, the enterprises in manufacturing industry have no choice but to invest their capital in the real estate since 2018. By the end of the first quarter in 2019, more than 3600 enterprises have gone public to issue A shares, of which more than 1726 enterprises have invested in the real estate and make up nearly half of the whole. The percentage of real estate in their total asset has been on the increase incessantly.

6. Which of China’s cities are at the highest risk in terms of the real estate market?

The real estate market in the first-tier cities are extremely risky!

The real estate market is affected by the structural risks. The house prices in different cities have been polarizing further. In the first-tier cities, the “House Price to Income Ratio” is much higher than the span of reasonable prices, and the real estate market is extremely risky.

In 2001, the “House Price to Income Ratio” was respectively 9.65, 7.42, 5.82 and 5.78 in the first-tier cities, the second-tier cities, the third-tier cities and the fourth-tier cities; In 2016, the “House Price to Income Ratio” was respectively 16.18, 7.13, 5.29 and 4.87 in the first-tier cities, the second-tier cities, the third-tier cities and the fourth-tier cities. There has been an increase of 73.8%,-3.9%,-9.1% and -15.7% respectively.

The above-mentioned six points have reversed your understanding about the real estate market, haven’t they?

In fact, the changes of the real estate market have a great effect on the whole society. It can be said that “a slight move in one part will affect the situation as a whole”. From this perspective, the related departments of the government will not permit the real estate market to “follow its own inclination”. A stable and healthy real estate market can meet the common desire of all the parties, and calls for the concerted efforts of all the parties!