谢国忠 Andy Xie: Per SQM Prices Will Drop to 2 Times Monthly Salary

Andy Xie in a recent interview said that property prices will fall to around two months wages or lower. Xie points out that the government cannot change long-term supply and demand, thus short-term measures have limited effect. Currently, were Xie's prediction to be correct, property prices in most cities would have to fall by 50-80%. In Beijing, the average salary is about 66,000 yuan per year, which is 11,000 yuan for two months. In Beijing, the land sells for nearly as much. Recently, the average price is close to 40,000 yuan per sqm. Strong wage growth can lift the floor though, and wage growth is one of the main policy goals of the current leadership. The common wisdom is that China needs 7% GDP growth to keep the public happy, but in reality people wage growth and disposable income are the keys.

Andy Xie also points out the pressure from high money and debt creation, something I wholeheartedly agree with. Either the currency depreciates or the prices in the currency will tumble, in this case home prices. China cannot turn off the laws of economics; the central government merely has more power than most to direct where the force flows. The free market would adjust with a double devaluation in currency and asset prices. To the extent the PBOC refuses to let the yuan to fall, it will lead to higher nominal price declines internally and most likely falling reserves, as the offshore yuan price dips and needs to be defended.

China can escape with less damage thanks to higher potential growth rates, but it cannot escape the laws of economics. Even if all the trillions of yuan in stimulus and loans were put to productive use, the country would still face great deflationary pressure (inflating here would solve the deflationary pressure, but would cause high inflation and increase the pressure on currency devaluation). That much of the capital was not put to good use will lead to a more painful adjustment.

谢国忠：每平米房价最终会降到2个月平均工资以下

Since the end of last year, China's real estate market began to decline. With the volume and price down, some cities have begun to introduce micro-stimulus policies, the market multiple voices heard.

In the end how to look at the current situation? How will the future? Declining trend in the real estate industry, what will have what effect? " First Financial Daily "interview, an independent economist Andy Xie , vice-president of the China Real Estate and Housing Research Association Gu Yunchang, a research director at State C Du Index Academy.

Rates will be a wave upon wave adjustment

First Financial Daily: how do you judge the current market situation, the bubble has burst, the inflection point , or short-cycle adjustment?

Gu Yunchang: I think it is a combination of both short-period adjustments and inflection point. But the turning point there are two explanations, one is a small turning point, one is a big turning point, the big turning point was positive growth to negative growth, small turning point is the slowdown. I am willing to current market conditions as a small inflection, sales growth decline, but unlikely to go down.

While this is cyclical correction, because the real estate market is to buy or not to buy, after the introduction of a policy, or economic situation changes, it is prone to wait and see. After watching some of the backlog of demand will subsequently released. April 2010 to the end of 2011, the whole is declining, but in 2012 after the sudden broke out, to keep this momentum into 2013. 2014 slowed the demand for the release, in fact, from last year's fourth quarter of stabilized, which is the objective of the small property cycle, is now in a small downward cycle stages.

Andy Xie: 2012 is a turning point, a partial rebound in 2013, primarily a second-tier cities, some of the four-tier cities is almost no sales. Four-tier cities obviously supply is too large, and people with limited incomes. Tier cities are now price bubble, four-tier cities is the amount of foam.

China is expected to change by regulation and create some demand, but can not change the long-term real estate supply and demand.

I think the prices will be adjusted wave after wave, because there will be changes in government regulation of people expected to happen, but how many final adjustment, the game will depend on the power of government regulation and market forces determine the price is not so easy to make. I think prices will drop per square meter final two average monthly wage or less.

Du State C: In the urban market increased differentiation, watching the atmosphere is getting stronger and the same period last year, under the influence of the high base, from January to April this year, China's real estate market performance is slightly sluggish. However, the medium to long term, China's real estate market is still in the range continued to expand upward, the current "inflection point" just change the expected impact of short-term fluctuations, the national real estate market in 2014 will show a "sales price continued to grow but at a slower release Slow, steady growth of investment in new construction "features.

Daily: How to explain the reasons for the decline in this round?

Gu Yunchang: real estate in addition to market factors, but also by the macroeconomic impact of the real estate control policies. Macroeconomic level, now China's economic slowdown will inevitably lead to the real estate market slowdown, which is complementary. Impact on the real estate is mainly monetary policy is now steady tight, since the fourth quarter of last year, the real estate credit is tight, resulting in a lack of funds the real estate market, sales slowed.

As the real estate control policy itself, nothing changes at the national level, in fact, now the situation is changing macroeconomic major credit policies and real estate cycle, resulting in a relatively down-market. 2012 we forecast in 2013 after the former high stability, in fact, is true. Completely different this year, after the former can achieve low stabilization, but also macroeconomic developments and monetary policy situation, and also whether to adopt a liberal policy for the country.

Andy Xie: Housing estate bubble is a manifestation of a huge monetary bubble, and this bubble has started down it. Currency is two lines, a look at the currency is not devalued, two people can borrow money to see you there. Now high household debt, local governments have borrowed so much money, currency devaluation pressure there, adding up money bubble go elsewhere, so the real estate bubble also go elsewhere.

Local government will relax the regulation

Daily: now part of the city control policies change, how will the next evolution?

Gu Yunchang: severe real estate market differentiation, and the real estate market characteristics about this, this is a regional market. The same tier cities are also differences. Under such circumstances, the government work report clearly calls for the classification regulation, so there are a number of local fine-tuning, or a micro-stimulation.

Local governments are actually regulate the existing authority, the impact of the real estate market is mainly macroeconomic policy, especially monetary policy, as well as real estate control policies. The former local government has no right to change, whether the latter is a local master domicile restriction , whether tax subsidies, there is the supply of the loan fund. Now it seems that the local government bailout mainly on three aspects.

On a local brewing fine-tuning, the intervention was immediately lost, and this one is no intervention, it seems also reasonable, should not affect the four-tier cities or more second-tier cities. Currently tier cities have not seen such signs, Beijing and Shanghai also requires a certain observation period, although there are some loose discounted, yet circumstances require government actions to reach.

Andy Xie: bailout useless, just to give you an illusion, so that we market. The purchase is blowing bubbles force the purchase of a sudden feeling of forming a shortage, leading everyone to buy a house.

Local government to relax the regulation will certainly spread to, will continue to think of various ways to come out. But unlikely to be effective in the four-tier cities, because the people had no money, so there are a large amount.

Du State C: local government bailout while and will not break the central regulation of tone and boundaries. Lack of demand, excess supply of four-tier cities will be the first adjustment measures are expected to mostly "open source" type, that is to relax the demand side, by relaxing the restriction conditions, lower down payment and loan interest rates, tax incentives and other means to stimulate market demand, accelerate stock to melt.

Prior to housing prices in some second-tier cities, will also join the ranks of policy adjustment. Hot line and second-tier cities, housing prices in the face of greater pressure on space and the possibility of policy changes will be relatively small.

After the first stage of fine-tuning a number of cities, the central front so as not to interfere. As can be seen, although the central level to keep track of changes in the real estate market attention, but do not want to introduce more administrative measures to regulate.

Smooth return premium trend

Daily News: Local Government has said anxious than the developers, the current situation will have what effect on the land finance and local development?

Gu Yunchang: developers anxious than local government, I think there is some truth to these words, because the slowdown in real estate sales, developers are expected to change, not actively take, construction slowed down, it will affect the local land revenue as well as real estate tax revenue, while Local governments are still highly dependent on both.

Du State C: January to April, representatives of area housing prices get down more obvious, covers, planning construction area of ​​decline was 19%, 26%, but an increase in the number of cases to get to, just to get to a slight decline in the amount of 3%. We believe that companies take to reduce the principal that the majority of enterprises to enter the housing stock of existing land digestion period, and the current complex market situation allows businesses slowed down the flow of capital, to a certain extent, affected the take to the expectations and funding.

As businesses get to more rational and stable return land to become a general trend, in 2014 four-tier cities will have tight fiscal land.

To acknowledge the real estate market bubble

Daily News: Real estate current situation will affect how the Chinese economy?

Gu Yunchang: China made steady economic growth, if a severe real estate downturn, will inevitably affect the stability of the growth process. Because the real estate construction area, new construction area, the number of land sales decline, will involve the construction and real estate-related, building materials industries, real estate is still a pillar industry. Real estate investment accounted for the proportion of total fixed investment of about 20% to 25% decline in real estate investment, will lead to a decline in investment in other sectors of the country's investment growth drop-down effect is obvious.

I think the local governments and the central government will not tolerate serious decline, adjustments are inevitable, but the hope is that a soft landing, the local government will help fine-tune a soft landing.

Now the real estate market to admit there is a bubble, the bubble is not small in some cities. Some cities have to wait and see mood, tighter credit, if you do not take timely measures, will produce great risk. In addition to the local fine-tune monetary policy fine-tuning may be necessary, for example, on the first mortgage, just need support, to ensure that. But not as strong as the 2008 stimulus, will form a new bubble.

Andy Xie: have an impact on the economy, but it is not a bad thing, the real estate industry down, its related industries such as construction, engineering machinery industry is not good, but after this adjustment, the middle-class consumer expectations like it, household consumption will increase. We worry about the effects will be transmitted to the Chinese labor market, but labor shortages are common, so the economic downturn will not have much impact.

The overall risk control

Daily: the current real estate market situation, will have an impact on financial stability? Bank of tolerance is how much?

Gu Yunchang: If the real estate risk, will inevitably affect the financial, the two are linked, the so-called real estate bubble is actually a financial bubble, real estate finance depends mainly on the cold cold. China's real estate market downturn, money is tight and relevant, in the center did not ease monetary policy fine-tuning of the cases, only rely on local government to fine-tune.

2008,2009 said, if house prices fall by 30%, the financial sector can bear, and now we think, too, of our financial leverage is not high. Real estate-induced financial risk, I think it is not essential.

Andy Xie: China human heart that banks will not let the house plunges, this is a psychological play. Now consider the bank's NPL ratio has exceeded 10% of the stock market, but less than 1% reported out, I know a lot of far more than the bank's NPL ratio of 10%.

Du State C: end of the first quarter of 2014, real estate loans 15.42 trillion yuan, 797.1 billion yuan added, representing the proportion of loans were 20.6% and 26.5%.

From the buyers perspective, if housing prices dropped significantly, there will be financial risks similar to the subprime crisis, housing loan default risks. For businesses, the prices quickly dropped significantly, causing consumer sentiment, leading to further deterioration in corporate sales, which transfer to the financial markets, non-performing loans, defaults and so will increase the financial panic filled. The local government, housing prices fell by volume and price will play a stabilizing role in the land market, land heavily dependent on local government finances, local debt repayment will be difficult, financial systemic risk or outbreak.

But for now, we think that the overall risk of the real estate market is controllable, less likelihood of a sharp collapse in house prices; while guiding the country's financial sector is also increasingly strengthened gradually exclude systemic risk problems, the overall financial environment will remain relatively stable.

Housing prices accelerate shuffle

Daily: Housing prices will not occur wave of bankruptcies?

Gu Yunchang: After sales slowed down, it should be said in favor of big business expansion, mergers and eliminate dead batch no brand no weak financial strength of the company, it is normal, the Chinese real estate industry needs such a reshuffle. Housing prices in the current situation is the competition, shuffling accelerated thinning profits.

In fact, in recent years China Real Estate's net profit margin decreased year by year, in 2012 than in 2011 net profit margin decreased from 18% to 19%, still down from last year, and now the real estate listed companies net profit margin of only 10%, 8%, Real Estate high profits era passed.

Du State C: 2014, housing prices of A shares to refinance the gates opened, allowed to issue preference shares, housing prices will trend more apparent differentiation. We believe that the national distribution of leading enterprises, product type extends to future commercial office, industrial real estate related to housing prices, focus on the area of ​​product development, from the early development of competitive enterprises gradually transferred to local management of late, these three companies will remain relatively good development trend.

Prior to other enterprises, especially small and medium enterprises to expand too fast, it will face more severe financial challenge, some companies do not rule out the possibility of bankruptcy or merger.