1. Real estate is the mother of cycles.
From the perspective of driving economic growth, whether, in developing countries or developed countries, the real estate industry has played a vital role in the macro-economy. Every economic boom is mostly related to real estate-driven consumer investment, and every major economic depression is mostly related to the bursting of the real estate’s bubble, such as Japan around 1991, Southeast Asia around 1998, and the United States around 2008. From the perspective of the wealth effect, in a typical country, the real estate market value is generally 2-3 times the annual GDP and 50% of the total amount of variable price wealth. Far from being comparable. Take Japan as an example. In 1990, the market value of all real estate in Japan was five times that of the United States and twice the total market value of the global stock market. The land price in Tokyo alone was equivalent to the land price in the United States. Taking China as an example, in 2018, real estate investment accounted for a quarter of the fixed asset investment in the whole society, and real estate-related investment accounted for nearly half. 71%.
2. Nine real estate crises out of ten.
Since real estate is the mother of cycles, has a huge impact on economic growth and wealth effects, and is a typical highly leveraged sector, most of the major economic crises in global history are related to real estates, such as the Great Depression in 1929 and the bursting of the real estate bubble and The subsequent crisis is related to the lost 20 years after the Japanese real estate crash in 1991, the middle-income trap of most economies after the Southeast banking Asian real estate bubble burst in 1998, and the subprime mortgage crisis in the United States in 2008. On the other hand, the abnormal fluctuations of the US stock market in 1987 and the abnormal fluctuations of the Chinese stock market in 2015 have a much smaller impact on the economy.
3. The formation of real estate bubbles was initially supported by fundamentals such as economic growth, urbanization, and residents’ income.
The demand for commercial housing includes residential demand and speculative demand. Residential demand is mainly related to urbanization, residents’ income, population structure, etc. It reflects the commodity properties of commercial housing. Speculative demand is mainly related to money supply and low-interest rates, which reflects the financial properties of commercial housing. Most real estate bubbles were initially supported by fundamentals. For example, the Florida real estate bubble in 1923-1925 was initially related to the World War I boom and tourism boom in the US economy, and the Japanese real estate bubble in 1986-1991 was initially related to the successful transition of the Japanese economy. Related to long-term prosperity, the 1991-1996 Southeast Asian real estate bubble was initially related to the “Asian economic miracle” and rapid urbanization.
4. Although the eras and countries are different, the crazy real estate bubbles have been stimulated by excess liquidity and low-interest rates without exception.
Since real estate is a typical highly leveraged sector (regardless of demand-side residential mortgage loans or supply-side housing development loans), the housing market is extremely sensitive to liquidity and interest rates. Excess liquidity and low-interest rates will greatly increase the speculative demand and financial attributes of real estate. , and out of the basics such as residents’ income and urbanization. After Japan signed the “Plaza Accord” in 1985, to avoid the negative impact of the appreciation of the yen on the domestic economy, it continued to cut interest rates sharply. From 1991 to 1996, the Southeast Asian economies experienced a large inflow of international capital under financial liberalization. After the burst of the Internet bubble in the United States in 2000, it stimulate the economy and continue to cut interest rates sharply. Since 2008, there have been three waves of real estate cycles in China. In 2009, 2012, and 2014-2016, in addition to the fundamental support of medium-to-high-speed economic growth and rapid urbanization, each time was related to over-issue of currency and low-interest rates. The waves are especially noticeable.
5. Government support, financial liberalization, lack of financial supervision, and out-of-control bank lending have contributed to fueling the fire and adding fuel to the fire.
The government often stimulates real estate for economic development. Around 1923, the Florida government-built infrastructure to attract tourists and investors. After 1985, the Japanese government took the initiative to cut interest rates to stimulate domestic demand. In 1992, Hainan established a special zone to encourage development. The Bush administration implemented the “Home Ownership” program. Financial liberalization and lack of financial supervision led to excessive currency flow into real estate. Japan accelerated financial liberalization and liberalized corporate bond financing around 1986. From 1992 to 1993, Hainan’s government, banks, and developers formed a close iron triangle In 1991-1996, Southeast Asian countries accelerated the opening of capital accounts, which led to a large inflow of international capital. The rise of shadow banking in the United States in 2001-2007 led to excessive financial innovation. Due to the high-leverage nature of the real estate, bank lending is out of control, fueling the fire. Rising house prices and the appreciation of collateral will further promote banks to increase lending, and even take the initiative to persuade customers to make mortgage loans, zero down payment, and leverage. The banking industry has been deeply involved in all real estate bubbles. Trapped in it, resulting in the real estate bubble crisis is both a financial crisis and an economic crisis.
6. Although the eras and countries are different, all real estate bubble collapses are related to monetary tightening and interest rate hikes.
Risks are rising, and the bigger the bubble, the greater the possibility of bursting and the deeper the adjustment. The Bank of Japan raised interest rates five times in a row since 1989 and restricted real estate loans and cracked down on land speculation. The Japanese real estate bubble burst in 1991. On June 23, 1993, Zhu Rongji announced the termination of the listing of real estate companies and the full control of bank funds entering the real estate industry. In 1997, the exchange rates of Southeast Asian economies collapsed, international capital was withdrawn in large numbers and the real estate bubble burst. The Federal Reserve raised the federal funds rate 17 times in a row since June 2004. In 2007, subprime mortgage defaults increased significantly, and the subprime mortgage crisis broke out in 2008.
7. If there is a lack of fundamental support such as population and urbanization, it will take longer to adjust and recover after the real estate bubble bursts.
There were two rounds of bubbles in Japanese real estate in 1974 and 1991. The first adjustment around 1974 was small and the recovery was strong. The reason was that the economy grew at a moderate speed, the space for urbanization, and the number of people who bought houses of the right age remained high, which provided fundamentals. However, the second adjustment around 1991 was large in magnitude and long in duration, due to the long-term low-speed economic growth, the approaching completion of urbanization, and the aging of the population. After the US real estate bubble burst in 2008, instead of falling into the lost 20 years like Japan, housing prices hit a new high, mainly because of the US’s open immigration policy, healthy population age structure, flexible and dynamic market economy, and innovative mechanisms Wait.
8. Every time the real estate bubble collapses, the impact is great and far-reaching.
From 1926 to 1929, the real estate bubble burst, and the Great Depression caused by the banking crisis escalated from a financial crisis, an economic crisis, a social crisis, and a political crisis to a military crisis, which caused a devastating blow to human society. After the collapse of Japan’s real estate industry in 1991, it fell into a loss of 20 years, with an economic downturn, high non-performing loans, shrinking residents’ wealth, and long-term deflation. After the real estate bubble burst in Hainan in 1993, it had to deal with unfinished buildings and non-performing loans for a long time, and the local economy was sluggish for a long time. It has been 10 years since the subprime mortgage crisis in 2008. The US economy has only begun to emerge from recession after three rounds of QE and zero interest rates. So far, the impact of the subprime mortgage crisis on the world has not been eliminated.
9. We should be vigilant and take measures to control the real estate bubble, and accelerate the construction of a long-term mechanism with man-land linkage and financial stability as the core.
“Real estate looks at the population, in the long run, land in the medium term, and finance in the short term.” China’s economy and residential investment have bid farewell to the era of high growth, and real estate policies should adapt to the characteristics of the new development stage of “slowing aggregate volume and structural differentiation “.In the long run, although the proportion of China’s 20-50-year-old main home buyers peaked in 2013, considering the process of urbanization, the growth of residents’ income, the miniaturization of the average household size, and the renewal of housing, China’s real estate market will still be relatively large in the future. Expansion capacity. In the medium term, the regional differentiation is obvious, the population continues to migrate to the metropolitan area, the separation of people and land, and the mismatch between supply and demand are still serious. The real estate bubble has a very obvious negative effect: the sharp rise in housing prices worsens income distribution, increases the social speculation atmosphere, and inhibits the enthusiasm of enterprises to innovate; real estate is non-productive, and too much credit invested in real estate will crowd out investment in the real economy; excessive housing prices increase The cost of production and living in society can easily lead to the hollowing out of the industry. At present, measures should be taken to avoid the bubble trend of rising house prices from the fundamentals. Consideration can be given to reforming the “connection between people and land” with the increase of permanent population as the core, optimizing land supply; steadily promoting the reform of real estate tax and promoting the transformation of land finance; implementing long-term stability The housing credit financial policy has been adopted to stabilize market expectations; the supply entities have been enriched, the housing supply structure has been optimized, and The shortcomings of rental housing have been accelerated.
