Chinese Housing Markets: What We Know and What We Need to Know - PowerPoint PPT Presentation

Chinese Housing Markets: What We Know and What We Need to Know Yongheng Deng, Joe Gyourko & Jing Wu China’s Real Estate Markets NYU Stern School of Business April 17, 2015 1

Documentation—Prices and Quantities • What We Need—Better Measurement – No official constant quality house price series • Private series exist (and we use one from Tsinghua in our paper) – Land market • Can see raw land sales (leasehold estates) • Chinese Residential Land Price Indexes 2

Documentation—Prices and Quantities • What Do These Data Show? – Strong trend price growth in aggregate in land and house values • Economically large variation about that trend – Substantial heterogeneity across markets • Extremely strong real price growth in Beijing, but real land values have fallen substantially the past two years in Dalian – Transactions Volume • Has fallen in recent quarters both in terms of land parcel sales and in the amount of new housing sold 3

Documentation: A Closer Look at Land Prices Across Major Markets • Chinese Residential Land Price Indexes (CRLPI) – Wharton ‐ Tsinghua ‐ NUS collaboration (Gyourko, Wu, Deng) – 35 major markets, not just east coast or East region cities • See next slide – Transactions ‐ based, not appraisal ‐ based – Full samples of land sold by local governments to private residential developers – Constant quality price indexes created 4

城市覆盖范围 City Coverage • 目前 CRLPI 指数覆盖全 国 35 个大中城市。 Currently CRLPI covers 35 major cities in mainland China. • 这些城市占据了全国新 75% 建商品住房市场约 50% Market Share by Floor Area 70% Market Share by Total Value 65% 的市场份额。 60% These cities contribute 55% to about 50% of the new 50% 45% home market in the 40% whole country. 35% 30% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 5

Figure 1: Chinese National Real Land Price Index 35 Markets, Constant Quality Series (Quarterly: 2004q1 – 2014q4) 2004(1)=100 500 450 400 350 300 250 200 150 100 50 0 2004(4) 2005(4) 2006(4) 2007(4) 2008(4) 2009(4) 2010(4) 2011(4) 2012(4) 2013(4) 2014(4) 6

Figure 1’: Chinese National Real Log Land Price Index 35 Markets, Constant Quality Series (Quarterly: 2004q1 – 2014q4) 6 5.5 5 4.5 2004(4) 2005(4) 2006(4) 2007(4) 2008(4) 2009(4) 2010(4) 2011(4) 2012(4) 2013(4) 2014(4) 7

0 100 200 300 400 500 600 700 2003(4) 2004(4) 35 Markets (Quarterly: 2004q1 – 2014q4) Figure 2: Number of Parcels Sold 2005(4) 2006(4) 2007(4) 2008(4) 2009(4) 2010(4) 2011(4) 2012(4) 2013(4) 2014(4) 8

Chinese Housing Unit (Really Space) Growth 2007 ‐ 2014 Figure 6: Year-Over-Year Growth in Floor Space Sold, Newly-Built Housing Units, 2007(1)-2014(4) 80% 60% 40% 20% 0% -20% -40% 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 National Level 35 Major Cities 9

Figure 3: Chinese Regional Real Land Price Index East, Middle and West Regions, Constant Quality Series (Semi ‐ annually: 2004h1 – 2014h2) 2004h1=100 500 400 300 200 100 2004h2 2005h2 2006h2 2007h2 2008h2 2009h2 2010h2 2011h2 2012h2 2013h2 2014h2 East Middle West 10

Summary Statistics: 12 Major Cities 2004 ‐ 2014 (44 quarters) Table 3: City Price Index Real Growth 2004 ‐ 2014 2006 ‐ 2014 2007 ‐ 2014 11 years 9 years 8 years Beijing Changsha Chengdu Chongqing Dalian Hangzhou Nanjing Tianjin Wuhan Shanghai Guangzhou Xian Total Appreciation 1036% 248% 201% 449% 101% 273% 248% 332% 102% 342% 169% 78% Compound Annual 27.5% 13.3% 11.6% 18.6% 7.2% 14.1% 13.3% 15.7% 7.3% 20.4% 15.2% 8.6% Growth Rate 11

Beijing 2004=100 1100 1000 900 800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 12

Dalian 2004=100 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 13

Chongqing 2004=100 700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 14

Documentation—Prices and Quantities • What Do We Need to Know? – Need broader constant quality price series • Resale market, not just new construction – Need a longer time series, but only time will deliver that – Need number of units, not just amount of space 15

What Do We Need to Know? • Better measures of price and quantity are not enough – Cannot tell all that much just by looking at P and Q • Intersection of supply and demand • What do local market supply and demand fundamentals look like in Chinese housing markets? 16

Metrics on Supply ‐ Demand (Im)Balances • Annual new construction relative to market size • Unsold inventory relative to sales volume in market • Vacancy rates in nine provinces • Price ‐ to ‐ rent ratios • Price ‐ to ‐ income ratios • Breakeven real appreciation expectations from Poterba user cost equation 17

Annual New Supply As Share of 2010 Stock 10.00% 10.00% 9.00% 9.00% 8.00% 8.00% 7.00% 7.00% 6.00% 6.00% 5.00% 5.00% 4.00% 4.00% 3.00% 3.00% 2.00% 2.00% 1.00% 1.00% 0.00% 0.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Beijing Tianjin Shanghai Chongqing Changsha Guangzhou Chengdu Xi'an 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Nanjing Dalian Hangzhou Wuhan 18

Unsold Inventory Held by Developers As Share of Transactions Volume in Market 350% 350% 300% 300% 250% 250% 200% 200% 150% 150% 100% 100% 50% 50% 0% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Changsha Guangzhou Chengdu Xi'an Beijing Tianjin Shanghai Chongqing 350% 300% 250% 200% 150% 100% 50% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Nanjing Dalian Hangzhou Wuhan 19

Aggregate Space Delivered 35 Major Markets million sq.m. 500 450 400 350 300 250 200 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20

New Vacancy Rate Estimates Vacancy Rate 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 9 Provinces Beijing Liaoning Zhejiang Anhui Hubei Guangdong Sichuan Shaanxi Gansu 21

Longer ‐ Run Supply/Demand Trends 2001 ‐ 2012 Supply at least 10% below our projected demand • – Beijing (79%), Changchun (89%), Shanghai (72%), Hangzhou (70%), Ningbo (78%), Jinan (84%), Guangzhou (81%), Shenzhen (68%), Haikou (79%), Urumqi (79%) • Supply at least 30% above our projected demand – Hohhot (171%), Shenyang (142%), Harbin (138%), Nanchang (161%), Qingdao (142%), Zhengzhou (186%), Wuhan (140%), Chongqing (188%), Chengdu (177%), Guiyang (141%), Lanzhou (143%), Yinchuan (174%) • Other Major Markets Somewhere in Between, with Most Looking Modestly Oversupplied – Tianjin (120%), Shijiazhuang (113%), Taiyuan (120%), Dalian (100%), Nanjing (115%), Hefei (107%), Fuzhou (110%), Xiamen (93%), Changsha (119%), Nanning (112%), Xian (109%), Xining (94%) 22

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20 25 30 35 40 45 50 55 60 2009Q3 2009Q4 2010Q1 Beijing 2010Q2 2010Q3 2010Q4 2011Q1 Tianjin 2011Q2 2011Q3 2011Q4 2012Q1 Quarterly Price ‐ to ‐ Rent Ratios 2012Q2 20 25 30 35 40 45 50 55 60 Shanghai 2012Q3 2009Q3 2012Q4 2009Q4 2013Q1 2010Q1 2013Q2 Dalian 2010Q2 2013Q3 2010Q3 Chongqing 2013Q4 2010Q4 2014Q1 2011Q1 2014Q2 2011Q2 Nanjing 2014Q3 2011Q3 2014Q4 2011Q4 2012Q1 20 25 30 35 40 45 50 55 60 2012Q2 2012Q3 Hangzhou 2009Q3 2012Q4 2009Q4 2013Q1 2010Q1 Changsha 2013Q2 2010Q2 2013Q3 2010Q3 2013Q4 2010Q4 Wuhan 2014Q1 2011Q1 2014Q2 2011Q2 2014Q3 Guangzhou 2011Q3 2014Q4 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 Chengdu 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 Xian 2014Q2 2014Q3 2014Q4 26

Annual Price ‐ to ‐ Income Ratios 20 20 16 16 12 12 8 8 4 4 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Beijing Tianjin Shanghai Chongqing Changsha Guangzhou Chengdu Xian 20 16 12 8 4 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Dalian Nanjing Hangzhou Wuhan 27

Conclusions • Need more effort on measurement of prices in particular – China needs a S&P/Case ‐ Shiller price index – Ability to gauge land market is a real advantage • Keep context in mind when examining prices and quantities – Chinese prices started from very low base – China is a high growth and high volatility market • Do not see much value in trying to put the label ‘bubble’ on these markets – Very short time series, with imperfect data – Still, no doubt Chinese housing markets are very risky • ‘Priced to perfection’ in the following sense: even small changes in expectations, absent countervailing rent increases, will lead to large negative changes in price levels per Poterba’s user cost framework 28