Real Estate Industry’s Rise and Challenges

Over the past 40 years since the reform and opening-up policy was adopted， Chinas real estate industry， starting from scratch， has developed into an important powerhouse of the Chinese economy. Its added value contributed 6.5 percent to the GDP in 2018， with real estate investment accounting for 13 percent.

In the process of fast growt h， however， the industry has also seen serious problems. Although the government has curbed the growth of bubbles and some structural problems for the moment， these issues， both old and new， still pose risks and dangers to the industry and the macroeconomy. The miracle of Chinas real estate industry was brought about by housing reform， and in the future， the country must intensify economic and housing reforms to ensure the real estate industry can develop steadily and continue to boost economic growth.

Since September 2016， Chinas real estate industry has experienced a complete up and down cycle. In the future， in the face of more complicated macroeconomic conditions at home and abroad along with structural real estate bubbles， it is very likely that minor adjustments will be made.

A report compiled by the National Academy of Economic Strategy of the Chinese Academy of Social Sciences predicts that from the fourth quarter of 2018 to the third quarter of 2019， the growth speed of Chinas housing prices will be slower， and the growth of real estate investment may also slow down. In first-tier cities， housing prices will see slower growth or even negative growth， but the growth of housing investment will remain stable； in second-tier cities， both housing price growth and investment will begin to decrease slowly.

There are several factors favorable to the real estate industry. First， there are some potential demands for housing in the future； second， the Chinese economy maintains strong resilience； third， conditions for housing speculation have not yet changed； and fourth， there is still room for readjustments to real estate control.

Likewise， there are some unfavorable factors impeding real estate growth. First， the Chinese economy still faces downturn pressure， with uncertainties in the external environment and the implementation of policies promoting the private economy still pending； second， estate prices in fi rst- and second-tier cities are excessively high， leading to serious structural price bubbles， while in third-， fourthand fifth-tier cities， house vacancy rates are high， leading to structural quantity bubbles； third， government control measures have not been relaxed.

Several factors will diversify real estate development trends： First， there is still high potential for housing demands in first- and second-tier cities， especially before the shortage of land and housing supplies is solved. Second， after considerable development， housing prices in third-， fourth- and fifthtier cities have risen significantly， which has stimulated supply of land and houses and may cause new inventory pressure in the real estate industry.

The government must manage market expectations well， improve control measures and accelerate reform.

The government should work to stabilize real estate market expectations and eliminate bubbles in market expectations. To achieve this， it must deepen reform to recover market confidence and guide the market to be cautiously optimistic. It must also try to reduce market expectation fl uctuations.

Real estate control policies should be improved to prevent serious market fluctuations. The government should work to achieve a balance between the speed and quality of economic growth and between real estate development and macro-economic growth. The principles that “houses are for living， not for speculating” and “different policies have to be adopted in light of conditions in different cities” must be continued. In addition， there should be plans to address signifi cant fl uctuations in the real estate market.

The government must reform the basic system and accelerate establishment of long-effective mechanisms， including launching a property tax， opening up the municipal bonds market and reducing budgetary dependence on revenue from transferring land use rights. In addition， the distribution system between the Central Government and local governments for the revenue from transferring land use rights should be reformed， and the housing system reform should be intensifi ed.