Is there a bubble in the domestic property market? There are disagreements in all sectors of society, and people at the grassroots level feel that there is a bubble, while most experts and scholars say that the bubble is not big. In this regard, we believe that there is indeed a bubble in China's property market, but the degree of housing price bubble is different in different cities. The bubble in first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen is larger, while the housing price bubble in second- and third-tier cities is smaller.
In fact, whether there is a bubble in domestic real estate is analyzed from three aspects: first, the ratio of housing prices to income. According to international practice, it is 6-7 times the annual household income. At present, the ratio of house prices to income in second- and third-tier cities in China is 20-25 times, while the ratio of house prices to income in first-tier cities such as Beijing, Shanghai and Shenzhen is more than 40 times. This means that local residents can only buy a commercial house after not eating or drinking for more than 40 years. There is indeed a large bubble in housing prices in first-tier cities.
Second, the rent-to-sale ratio of the house. From the current point of view, renting a house now is indeed more cost-effective than buying a house. Taking Shanghai as an example, renting a two-bedroom house of more than 90 square meters costs only 100,000 yuan a year. And the market value of a house like this is at least between 6-7 million. This means that if the landlord buys the house for investment, it will take at least 60-70 years for the cost to pay for itself. Such a return on investment is not as good as the interest income of bank fixed deposits.
Third, the debt ratio of real estate enterprises. According to the data, in the first half of 2023, the debt ratios of R&F, CCCC, Sunshine City, and Poly are as high as 123.3%, 211.4%, 166.59%, and 103.83% respectively. The reason why the debt ratio of real estate companies is so high is mainly because the debt snowball brought about by the crazy expansion and land acquisition in the past few years is getting bigger and bigger. In this case, there must be a large bubble in the domestic real estate industry.
In the face of a large bubble in the real estate market, economist Ma Guangyuan said: the era of real estate as China's best investment product has ended, and the future of housing will gradually return to residential attributes. Ma Guangyuan means that the domestic real estate bubble can no longer be supported, and the future trend of housing prices is to de-invest, gradually and gradually return to residential attributes, and link the income of local residents. Obviously, Ma Guangyuan said the general trend of the real estate market in the future.
And Wu Xiaoling, the former deputy governor of the central bank, has long said that there are not many days for people to carnival in the bubble, and they must be prepared for the ebb tide. This is a reality that every country and every person has to face. At the same time, Guo Shuqing, the former chairman of the China Banking and Insurance Regulatory Commission, also issued a warning: real estate is the biggest "gray rhinoceros" in terms of financial risks in the mainland.
And the above celebrities are telling everyone to be ready for the bursting of the real estate bubble at any time. Only with a correct understanding of the current housing bubble can we take countermeasures. In fact, there are already 3 major signals for the current trend in the real estate market. The trend of the property market in the future is gradually becoming clearer.
Signal 1: More and more cities are falling in housing prices
Falling house prices have become a trend across the country. According to the data, the number of cities with a month-on-month decline in second-hand housing prices in 100 cities in April was 100, and the number of cities where second-hand housing prices fell has exceeded 90 cities for 11 consecutive months. In addition, the average price of second-hand housing in 100 cities across the country was 14,975 yuan / square meter, down 0.75% month-on-month, and has fallen month-on-month for 24 consecutive months. Obviously, housing prices in various parts of the country are currently in the trend of adjustment, and it is difficult to reverse in the short and medium term. It is obviously unrealistic to expect the housing bubble to continue and never burst.
Signal 2: Expectations in the real estate market are falling
After three years of the pandemic, many families are now losing their incomes or losing their jobs, and many families have put their plans to buy a home on hold for the time being. At the same time, people are increasingly inclined to save rather than buy a house. According to data released by the central bank, mainland residents' deposits increased by 8.56 trillion yuan in the first quarter of 2024, with an increase of about 6,114 yuan per capita. Obviously, people are not optimistic about the real estate market right now, expecting house prices to fall, and they are all putting their money in the bank. And once people's expectations of the real estate market change, the trend of falling house prices in the future is very obvious.
Signal 3: Various favorable policies continue, but the effect is not ideal
Since last year, the favorable policies for bailing out the market in various places have never stopped. First of all, most cities have relaxed the purchase and sale restriction policies. At the same time, banks have also lowered their deposit rates. In some places, the upper limit of CPF loans has been raised to encourage families who just need to buy a house.
Despite the good news in the property market, it has not been able to reverse the current trend of adjustment. At present, the real estate market in various places is showing a situation of "volume and price falling together". In fact, favorable policies can only avoid the ups and downs of the property market in the short term, but cannot change the current long-term downward trend of the property market. The trend of long-term adjustment of the domestic property market has become clear.