Real estate sector needs self-regulation

Mao Daqing, Executive Vice-President of a real estate developer China Vanke Co Ltd discusses the "chilly winter" sweeping over China's real estate market and its future on Beijing TV's talk show "Yang Lan One on One". [Provided to chinadaily.com.cn]

Mao Daqing, Executive Vice-President of a real estate developer China Vanke Co Ltd discusses the "chilly winter" sweeping over China's real estate market and its future on Beijing TV's talk show "Yang Lan One on One".

Yang Lan: In May We saw housing prices decline in some cities such as Shanghai and Shenzhen. How do you interpret this?

Mao Daqing: I would describe it as an indigestive condition.

Yang: Indigestive? Did it swallow more than it could chew?

Mao: It is a fullness of the market. In the past three years, after the government's strong regulation of housing policy, some cities that were less regulated began attracting huge investments. And governments there started actively selling land that resulted in over-supply.

In other big cities that had hot real estate markets, such as Beijing, investors thought that there was no risk in real estate investments. No mater how high the prices were, a "rigid demand" will always be there.

But some people still claim it is "rigid demand" even when prices reach 80,000 yuan ($12,890) per square meter. What is this "rigid demand"? Sometimes I don't understand it. This demand doesn't represent those in low middle income; it means real estate in big cities can be easily acquired at any price.

In past 15 years, according to my knowledge, 70 percent of people who have most purchasing power were born in 1964, 1965, and 1973. Although these middle-aged people are less rigid when it comes to extra housing because of their economic stability, they need to take care of their children's (born in 1980s and 1990s) requirements.

And this has brings up the problem of "mother-in-law pushing up housing prices". They buy houses for their children in panic (most Chinese parents are afraid that their children will not get married without a new house).

China is facing the problem of largest aging population in the world. We did a calculation last year and found that there will be more than 400 million 60 year olds by around 2030. And the real estate demand must fall as the rigid requirement decreases gradually.

There will always be a demand, but don't expect the prices to increase endlessly.

Yang: Housing prices rebounded significantly in 2008 because of the government's "4 Trillion Yuan Economic Stimulus" program (enlarge the investment of indemnificatory housing). But the government didn't implement such things this time; people are talking about new situations. What do you think the government should do?

Mao: 10 years ago, the rapid increase in housing prices gave rise to unbalanced and unfair resource allocation. So the government released a series of measures and wanted to regulate and quickly manage the situation.

But this brought another problem. It is like a person taking medicine everyday to take care of health and finally gets an endocrine disorder. And you don't know which part of your body went wrong. You can't always depend on "medicine"; it has covered the real market condition and brought unbalanced investment.

The government should keep providing money to stimulate economy, or say "farewell" to the past practice? If they didn't adjust the economic structure, the market wouldn't move forward. But once the government intervenes, the real estate market starts feeling uncomfortable.

The adjustment came this time when the government did not issue any policy but only fine-tuning its policy on banks. This move was not directed against the real estate market but was aimed at adjusting the economic structure.

Yang: Situations in different cities are different and situations in different real estate enterprises are different. Actually social mentalities are also dividing, along with different reactions in different positions.

Mao: Because when a person has too many private properties, he cannot afford to lose. When he owns a house, he is concerned whether the value of the property will depreciate. When he holds cash, he is worried about devaluation too. So he is always going back and forth between property and cash.

I found that more properties a person holds, the more worried that person is. They are very afraid of their properties losing their value.

Yang: We have seen and heard many so-called hovers and hesitations. What do you think we should do to bring a positive change into our economic structure?

Mao: The real estate market ought to learn to self-regulate and get used to market forces balancing the sector. The transition period is always tough. Real estate developers may face a tough time.

People too should adjust themselves mentally. They need one or two years to decide this question of whether to buy or not to buy. After digesting the things that are not well digested and balancing the things that are unbalanced, the market will find a balance naturally.