ORIENT ACADEMIC FORUM

The Analysis of Chinas Housing Price Based on the Demand

ZHANG Yun, CHENG Yapeng College of Urban and Rural Construction, Agricultural University of Hebei, Baoding, 071001 zydhfly@163.com Abstract: In the real estate market, housing price is determined by supply and demand. This article mainly analyses the reason of price rising from the demand angle. With regard to the housing demand caused by the Urbanization and the housing speculation, the author gives her own suggestions. Keywords: housing demand, housing price rising, speculation

1 Instruction
Along with the development of Chinas real estate market, the housing price also presents a rising trend. Affected by the 2008 U.S. economic crisis, Chinese real estate industry has experienced an adjustment stage.During that time, the housing price declined, but in the long run this decline is transient. Generally speaking, in most of our cities the housing price is still rising. According to statistics, in the first half of the Year 2010, housing sales price continued to rise, but the growth number is not higher than before. In June 2010, 70 cities housing sales prices rose by 11.4%, the number is 1.0 % lower than the number in May.In June, the newly-built house prices rose 14.1% than the same time in last year, but 1.0 percent lower than that in May in which month the price rose 0.4 %. During this period, The price of economically affordable housing has a year-on-year rises of 1.1 percent , the price of Commodity house has increased by 15.8 %, ordinary house price 15.2 %, high-grade house price 18.0%. second-hand housing sales price rose by 7.7 %. In face of the tendency of price rising some Chinese scholars have done further research about the factors that influence the real estate price. Yang Guizhong, Deng Xuefen use SPSS to model the trend of house price tendency in Chengdu City. A model of multiple linear regression analysis is built, in which the house price is chosen as dependent variable, urban population and area of construction are chosen as independent variables. Although GDP, average disposable income of citizens, fulfillment of investment, area of construction,area of completion are initially chosen as independent variables, they do not pass the significant test. Finally, analysis of this model is presented and a good after- simulation is made. Based on the rough set and the influential factor of the price of real estate Li Peng Feng Yumei analyze the influential factor of the price of real estate they prove that the result they obtained is more reasonable LUWei, ZHANG Zhi think that the pluralism and disequilibrium characteristics of housing market can not be explained by the theory of general equilibrium.On the basis of dissipative structure theory,the echelon allocation system of housing supply and demand is constructed with Chinese characteristics. Western economics theory thinks that the price of commodities is decided by the relation of commodity supply and demand, and the real estate market is not an exception. Due to the particularity of real estate goods, such as the limited land resources and long period of the project construction, the inestic of the real estate supply in short period. Compared with the supply , the demand of real estate has a greater flexibility than the supply. So this article mainly analyses housing price from the perspective of market demand.

2 The Analysis of the Reason for Price Rising From The Angle of Demand
2.1 Urbanization drives the Housing Demand With Chinas urbanization process, the urban population in China are also increasing. Because of Our large population base, even if there is a small town population growth ,it will bring a greatly increase in
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Chart 1 Population Proportion Urban vs. Rural in China

% 80 70 60 50 40 30 20 10 0

1991

1993

1995

1997

1999

2001

2003

2005

2007

(year)

From chart 1, We are easy to see the growth in Chinas urban population in recently 20 years. By the end of 2008, Urban population has reached to 60667 million, urban population and rural population each will almost takes half proportion of the whole countrys population . Obviously, this is a great pull for urban residential housing demand the increase in demand will cause the rise in price.
Chart 2 The Average Sale Price of Residential Houses in China 4000 3500 3000 2500 2000 1500 1000 500 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year

Yuan/ per squar metre

The chart 2 shows that Our housing average sale price and the proportion of the urban population present Similar upward trend. Our housing average sale price was 1790 yuan per square meter and the price became 3576 yuan per square meter in 2008, Almost twice as much as that in 1997. In some first-tier cities ,the house-price is far higher than the average selling price. According to the material published by the Ministry of Housing and Urban-Rural Development , By 2015, Chinas urban

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the number of urban population. According to statistics, in 1991 in China , the proportion of urban population takes 26.94% of the total population, but in the end of 2008, the proportion is 45.68% almost takes half proportion of the total population in China. This shows there is a rapid growth of urban population in recent ten years. During the process of the population growth, demand for residential real estate will also increase. Therefore, the higher the urbanization level , the more demand for residential real estate. Under the premise of the inelastic in supply, increased demand will produce a rise in residential real estate prices.

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population will break eight million. In the meantime, the housing problem for about 2 million new urban population needs to be solved .Under the condition of high inflation of urban population and urban area, house prices will be certainly higher than the reasonable price that the foreigners think .Since the process of urbanization will not be slower than before in a long time, house prices will also be difficult to fall. 2.2 Speculative Demand Due to the particularity of house commodity, its characteristic value makes it become a selection object for many investors. The purchase behavior based on the purpose of speculation greatly increases the real estate demand, and this causes the housing price to remain high. In April of this year, the homebuyer based on the real estate speculation swarmed into the real estate market, and many people made their decision for purchasing house as they saw the house .In their mind , Once owned houses, it means have money . According to the reports, from 2007, Tianjin has built some new cities .Among these cities ,there is an area named Hongkanlingshijun .This area is used for villas, and it is about 30 minutes to the center of Tianjin by car .It is said the villas have already been sold up ,but there are only a few residents live there ,which is to say the villas have a low occupancy rate. So, who are the buyer that buy the villas and not live in ? Obviously, it is the buyers with the purpose of housing speculation . Their purpose is not to buy for living needs, but to obtain profits by speculation. At the end of 2009 in China, many house retailer found that in the housing trading volume the ratio of first home-buyers and the multiple home-buyers is one to one .This means that first home-buyers and the multiple home-buyers stand on the same start line contesting housing resources .The result is that the housing price is higher than before . Because of the joining of the speculators, house prices continue to rise. As a result ,the people who really have the real demand for housing cant afford to buy the house. What is worse ,the houses sometimes are not available for them. On the contrary , some people who do not really need the house maybe own a lot of houses that they will never live in . The rich can make a lot of profit from this money game ,but leave many social problems a large number of people are disappointed at the society, vacant rooms are a waste of social resources, the huge housing bubble continues to accumulate the financial risks This calls the government and the relevant departments to formulate rules and regulations strictly, combat the real estate market speculation, so we can ensure a home for everyone and safeguard social stability. 2.3 Other Factors Housing passive need brought by the old urban transformation has greatly increased the housing demand in the city. With the accelerated process of urbanization and the intensity of urban transformation increased, the work of dismantlment of urban housing goes into a rapid development stage. Everywhere, especially the developed area, the scale of dismantlment of urban housing is expansing . Due to building demolition, no matter how the economic strength of these households or relocated families, these households have to buy new houses .Maybe ,buying new house is not in the plan of the year household consumption, even it is unwilling. To a certain extent, this passive demand for houses makes the housing price higher. In addition, consumer expectations of the rising price, the miniaturization trend of family size all increase the housing demand in the urban. As a consequence, the increasing demand will lead to the rising of the house prices .

3 Suggestions on How to Remit the Rapidly Price Rising

3.1 Rationally control the scale and the progress of urban building demolition Urban demolition undoubtedly is an important way to change the citys appearance, but if the work of
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urban building demolition is done in the radical way, the passive demand caused by the urban building demolition will be a serious blow on the urban real estate market. In the meeting of Standing committee of state council on May 17, 2006, premier WEN jiabao pointed that we should rationally control the scale and the progress of urban building demolition, Slow down the rapid growth of passive housing demand . Therefore, when the local and national governments do the work of Urban demolition and old urban transformation , they should work out measures to suit local conditions, increase management of the relocation plan, rationally control the scale and the progress of urban building demolition. The governments should avoid doing the work of Urban demolition blindnessly ,make a good job of resettling the residents, rationally control the passive housing demand caused by the urban building demolition, slow down the quickly growth of the passive housing demand. The purpose of these measures are to avoid the upward trend in prices caused by the passive housing demand. 3.2 Curb the speculative demand for housing Because of the narrow investment channel in our country, a lot of rich people become real estate speculators. They buy houses in order to earn more money. The speculative behavior promotes the growth of the housing price .Therefore, the Chinese government and relevant financial regulators should formulate severe measures in order to fight against speculative behaviour and to maintain price stability. The Specific measure is: firstly, implement the real-name system for property buyers taking the family as a unit. Secondly, carry out the System of progressive down payment proportion, the down payment proportion should be improved to 30% 50% for the house buyers who are ready to buy the second or the third house for their family. Thirdly, charge high individual income tax for the seller who want to transfer the house after buying the house within five years, reduce the high profit of speculators, effectively curb the speculative behavior. Anyhow, the government should strengthen the supervision of the real estate market, increase the effective supply of common commercial housing, increase the land supply for the rent and common housing ,improve the efficiency of land use, carry out low-income housing projects on a large scale, Suspend the construction for high-grade residential housing and strictly control its land-use scale, encourage home consumption, distinguish clearly the purpose of housing buying, whether to improve the living conditions or only to make a good investment .The government must limit one family to have more than one houses .The speculative behaviour should be restrained and attacked. The real estate tax should be levied as soon as possible, effectively curb the speculative behavior for houses, let the real estate market enter a virtuous circle. 3.3 guide residents to enter reasonable consumption track In the Real estate market, consumers can buy houses by means of mortgage loan, and developers advocate the importance of property for each family. It is just because of these directly or indirectly publicity, together with the traditional family opinions, that make a lot of consumer buy houses ahead of schedule. In China, some rich second generation own their own real estate at an early age on account of the possessions from their parents Some young working-class who havent enough money for houses have to become house slaves The overdraft of future housing consumption greatly promotes the current demand scale. In recent years, the housing purchase decisions buying a house in one step or as soon as possible tend to become more and more obvious. Consumers whether choose to rent a house or buy a house, buy a big house or buy a small house should accord to their own economic strength. In fact, for the wage-earning class, the house is not the bigger the better, if the layout and structure is reasonable, Economy Residence is also a good choice for the wage-earning class. With respect to the gradient consumption, Government should give correct guidance to consumers in order to avoid a comparison between the consumers. In the other word, it is to avoid the comparing phenomenon.

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3.4 Adjust Housing Supply Structure Based on the situation of our country, the development of Small and Medium-size housing construction must be a long-term strategy for the real estate industry. Small and Medium-size housing does not mean low standard, low comfort. The key is to improve cost-performance ratio and the living quality. By means of design, equipment and the handling of material, Developer can achieve the purpose of comfortableness and health. Strictly in accordance with national regulations, in the new housing construction projects , the building area of the houses under ninety square metres must reach at least Seventy percent of the total development area .Strengthen the management of land resources, and control the unreasonable rise of the housing price through the adjustment of land resource supply. Government should strictly limit the land supply for the high-grade commercial housing, and supply more land to the medium-priced commercial housing that built for ordinary people, and can also reduce relevant tax of the medium-priced commercial housing. Recovery idle land supervise and urge the real estate project that has already been approved to start as soon as possible .Produce more low and medium-grade residential commodity. The virtual high prices of housing will not only influence the stability of a city consumption growth, but also will affect the long-term competitiveness of a city. The low price of the economically affordable housing whose land grant fee is free ensures that the low-income families can afford the houses ,and also the economically affordable housing stabilizes the housing prices .Governments at all levels should further the cognition of the importance of the economically affordable housing ,implement and improve the policies of the economically affordable housing, adhere to the development of applicable housing for the urban and rural residents, supply more low-priced houses, ensure that the measures are carried out effectively . If we follow the steps above ,we can believe that in most of our cities ,the trend of price rising will be restrained.

References
[1]. Yang Guizhong, DengXuefen. Regression Analysis and After Simulation of House Price in Chengdu City .Value Engineering . No.4,2007 :46 50 (in Chinese) [2]. LI Peng, Feng Yumei. Analyzing the Influencial Factor of Price of Real Estate Based on RS. Journal of Hebei University of Engineering (Social Science Edition) Vol.24 ,No 2. Jun 2007:33 34 (in Chinese) [3]. LuWei, ZhangZhi. Construction of Echelon Allocation System of Urban Housing Supply and Demand .Journal of Tianjin University (Social Sciences) Vol.9 No.5.Sep. 2007:452 454 (in Chinese) [4]. MosheB.N., Michael B., Yoel H.. The Market for Housing in Israel [J].Regional Science And Urhan Economics 1998 (28):21 49.

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