Discussion on China s Housing Market: What we know? What we don t

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Discussion on China s Housing Market: What we know? What we don t Haizhou Huang CICC Paper presented at the International Symposium on Housing and Financial Stability in China. Hosted by the Chinese University
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Discussion on China s Housing Market: What we know? What we don t Haizhou Huang CICC Paper presented at the International Symposium on Housing and Financial Stability in China. Hosted by the Chinese University of Hong Kong, Shenzhen Shenzhen, China December 18-19, 2015 The views expressed in this paper are those of the author(s) only, and the presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the paper. Discussion on China s Housing Market: What we know? What we don t Haizhou Huang Shenzhen (CUHK/IMF Conference) December 18, 2015 Vacancy rate too high? - Definition of the vacancy rate Broad vacancy rate: All houses other than primary residences are considered vacant. Tend to overestimate the vacancy rate. Japan, Singapore, Hong Kong and most EU member states use this definition. US vacancy rate (narrow sense) 16.0% US vacancy rate 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 13.5% Narrow vacancy rate: Excludes: 1) houses under decoration or repair, which are not available for use; 2) run-down houses, which are unsafe and forbidden from being used; and, 3) old houses which are due to be demolished. Sources: CEIC, CICC Research Japan vacancy rate (both broad and narrow sense) 16.0% Broad vacancy rate After excluding houses under decoration 14.0% After excluding houses under decoration and second homes 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 13.9% 13.1% Sources: CEIC, CICC Research 2 18% broad vacancy rate not too high International experience indicates a broad vacancy rate of 10%~15% is reasonable, while 15%~20% is an alarming level, 20% points to high risk, and 10% insufficient. In a narrow sense, these figures should be lowered by 1~2ppt in welldeveloped markets or more in emerging markets. In China, we believe a vacancy rate of 7~12% should be reasonable, 12~17% an alarming level, 17% high risk and 7% insufficient given the current stage of China s housing market. 18% broad vacancy rate by end % narrow vacancy rate Urban City Township Total Total housing units (mn) Occupied housing units (mn) Vacant housing units (mn) Vacancy rate 18% 16% 21% Excluding houses under decoration, vacancy rate should lower to 15%. 13mn housing units completed in 2013, assuming decoration of a house takes half a year, 6.5mn units were deemed empty. Vacancy rate declines further to 13% if run-down houses are excluded. Run-down houses are those built before 1969, around 2.1% of Vacancy rate is 0% if houses without certificates of title are existing excluded houses by Calculation of total housing GFA without certificates of title: mn sqm Area Calculation Nationwide existing housing GFA during the Sixth Census 40,117 A Nationwide existing housing GFA during the Fifth Census 27,739 B Housing GFA increased during 2001~ ,378 C=A-B Demolished housing GFA during 2001~2010 3,710 D Nationwide completed housing GFA during 2001~ ,088 E=C+D Percentage in urban areas 52% F Urban completed housing GFA during 2001~2010 8,361 G=E*F Urban completed housing GFA during 2001~2010 released by NBS 6,721 H Completed housing GFA without certificates of title during 2001~2010 1,640 I=G-H Houses without certificates of title as % of total completed GFA 20% J=I/G mn sqm Area Calculation Nationwide completed GFA during 2011~2013 5,888 K Percentage in urban areas 55% L Urban completed housing GFA during 2011~2013 3,239 M=K*L Houses without certificates of title as % of total completed GFA 30% N Completed housing GFA without certificates of title during 2011~ O=M*N Total housing GFA without certificates of title 2,612 P=I+O 3 There is enough housing stock Total housing stock of 21bn sqm is basically sufficient Total urban housing stock stands at 261mn units with a GFA of 21bn sqm. City areas : Housing stock of 154mn units with a GFA of 11.8bn sqm. Township areas: Housing stock of 107mn units and 278mn rooms, with a GFA of 9bn sqm. Urban City Township Total Housing stock (mn sqm) 20,851 11,835 9,015 Total housing units (mn units) Total rooms (mn) Average Housing GFA per capita (sqm) Housing units per family Rooms per family generation GFA per housing unit (sqm) Rooms per housing unit GFA per room (sqm) but distribution is uneven and quality needs to be improved Crowded on one hand, vacant on the other hand Urban City Township Average Housing units per family Occupied housing units per family Vacant housing units per family Portion of low quality houses 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 25% 15% 42% Bungalows Urban City Township Bungalows Sources: news picture on Baidu 19% 11% 31% 24% 19% 33% Brick-wood or Housing more outdated without private housing kitchens or bathrooms 9% 10% 8% Housing built in 1979 or before 1% richest family owns 25% vacant houses 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% Accumulative percentage of vacant housing owned by families 94.4% 100.0% 99.0% 97.6% 98.6% 96.8% 30.0% 91.8% Accumulative 20.0% percentage of 10.0% families from 85.6% poor to rich 0.0% 85.2% 85.4% 80.0% 85.0% 90.0% 95.0% 100.0% Most units with only 2-3 rooms Single house, 3.5% Four-room apartment, 3.8% Bungalow and others, 7.0% Three-room apartment, 31.2% Tube-shaped apartment, 5.0% One-room apartment, 5.0% Two-room apartment, 44.4% Public washroom Sources: NBS Sources: news picture on Baidu 5 Four types of housing demand, three sources of supply Matching supply and demand Demand Satisfied by which supply Units GFA per unit Demand in GFA Supply To satisfy which demand Units GFA per unit Supply in GFA '000 units '000 units sqm/unit mn sqm '000 units '000 units sqm/unit mn sqm Newly-formed Affordable housing families' demand Non-affordable housing Affordable Newly-formed families ,269 Second-hand housing housing Urbanization 2, Subtotal 2, ,995 Demolition Upgrade demand 0 0 Urbanization Affordable housing 2, Subtotal 3, demand Non-affordable housing 0 0 4,330 Second-hand housing 1, Nonaffordable Newly-formed families Subtotal 4, Urbanization 0 0 housing Demolition 2, Demolition Affordable housing ,026 Upgrade demand 3, demand Non-affordable housing 2, Subtotal 7, ,422 Second-hand housing 1, Subtotal 4, Secondhand Newly-formed families Urbanization 1, Upgrade Affordable housing 0 0 housing Demolition 1, demand Non-affordable housing 3, ,969 Upgrade demand 0 0 3,969 Second-hand housing 0 0 Subtotal 3, Subtotal 3, Total 14, ,380 14, ,380 Demand for new housing 11, ,063 11, ,063 6 2011A 2012A 2013A 2014A Annual demand 1bn sqm in silver age Silver age would last till 2020, with 1bn sqm annual demand 1.2 (bn sqm) Residential GFA sold projection Source: NBS, CICC Research 7 Four types of demand in detail Demand from newly-formed urban families 186mn sqm Urban City Township Calculation Family population by end-2013 (mn) A Families by end-2013 (mn) B Occupied housing units by end-2013 (mn) C Family population by end-2020 excl. urbanization D Family size by end-2020 (members/family) E Families by end-2020 excl. urbanization (mn) F=D/E Increased families excl. urbanization G=F-B Occupied housing units per family H Occupied housing units by end-2020 (mn) I=F*H Increased occupied housing units (mn) J=I-C Units provided by affordable housing (mn) GFA provided by affordable housing (mn sqm) Units provided by second-hand housing (mn) GFA provided by second-hand housing (mn sqm) Units provided by non-affordable housing (mn) GFA provided ny non-affordable housing (mn sqm) Total demand in GFA (mn sqm) 1, Annual demand in GFA (mn sqm) Demand from urbanization 299mn sqm Urban City Township Calculation Total population by end-2020 (mn) A Family population as % of total population 90% 88% 92% B Family population by end-2020 (mn) C=A*B Family population by end-2020 excl. urbanization D Population increase due to urbanization E=C-D Family size (members/family) F Family increase due to urbanization G=E/F Occupied housing units per family H Increase in occupied housing unit I=G*H Units provided by affordable housing (mn) GFA provided by affordable housing (mn sqm) 1, Units provided by second-hand housing (mn) GFA provided by second-hand housing (mn sqm) 1, Total demand in GFA (mn sqm) 2,093 1,092 1,001 Annual demand in GFA (mn sqm) Demand from housing demolition 399mn sqm Demand from upgrade demand 180mn sqm Urban City Township Calculation Demolished housing GFA (mn sqm) 2,277 1, A GFA per unit of demolished housing (sqm/unit) B Demolished housing units (mn unit) C=A/B Units provided by affordable housing (mn) GFA provided by affordable housing (mn sqm) Units provided by second-hand housing (mn) GFA provided by second-hand housing (mn sqm) Units provided by non-affordable housing (mn) GFA provided ny non-affordable housing (mn sqm) 1, Total demand in GFA (mn sqm) 2,791 1,577 1,215 Annual demand in GFA (mn sqm) Urban City Tow nship Families by end-2020 (mn) Families w ithout the above three types of demand (mn) Annual percentage of upgrade demand families 2% 2% 2% Upgrade demand families (mn) GFA per unit of second-hand housing GFA per unit of upgraded non-affordable housing Net GFA demand due to the upgrade (mn sqm) 1, Annual GFA demand (mn sqm) Total supply of 11.3 bn sqm in Total residential supply in next ten years is estimated at 11.3bn sqm 12 bn sqm Planned land supply in Landbank for future development Under construction (unsold) Completed yet unsold Total supply in Source: MOHURD, NBS, CICC Research 9 2010~20 marks the silver age of China s housing market GFA of residential commodity housing completed historically (in mn sqm) Baseline scenario in 2020(E) Urban City Township Total Housing stock (mn sqm) 26,018 14,644 11,374 Total housing units (mn units) Average Housing GFA per capita (sqm) Housing units per family GFA per housing unit (sqm) Proportion of housing built in the most recent decade in China, Japan and South Korea 100% China 100% 96% Japan 90% 90% 80% 80% 70% 70% 60% 60% 50% 43% 50% 45% 40% 40% 29% 30% 30% 30% 19% 20% 20% 10% 10% 0% 0% E Sources: Statistics Bureau of Japan and South Korea, NBS, CICC Research 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% South Korea 57% 32% Population concentrates into big cities Japan big cities concentration raise as urbanization rose from 50% to 70% 50 % urban population in big city (LHS) % in medium sized city (LHS) Urbanization % (RHS) Source: United Nations - Department of Economic and Social Affairs, CICC Research U.S. big cities concentration raise as urbanization rose from 60% to 70% 50 % urban population in big city (LHS) % in medium sized city (LHS) Urbanization % (RHS) Source: United Nations - Department of Economic and Social Affairs, CICC Research Population concentrates into big cities (Cont d) China big cities concentration will continue to rise 50 % urban population in big city (LHS) % in medium sized city (LHS) Urbanization % (RHS) Source: United Nations - Department of Economic and Social Affairs, CICC Research China mega cities ( 10mn population) population concentration running low % urban population in metropolis Urbanization % China in 2010 US in 1950 India in 2010 Japan in 1950 Korea in Source: United Nations - Department of Economic and Social Affairs, CICC Research 12 Population keep flowing into the five metropolitan areas Formation of the five metropolitan areas in China Central China (mn population) 76 Bohai Rim (mn population) Southwest China (mn population) YRD (mn population) PRD (mn population) Source: China Population Census 2010, CICC Research 13 A snapshot of population flow Flow of people back to metropolitan areas after 2015 Spring Festival Source: Baidu 14 We like the hub cities of China s high-speed railways Map of China s high-speed railways Beijing Tianjin Zhengzhou Xi an Shanghai Hangzhou Wuhan Chengdu Chongqing Changsha Fuzhou Xiamen Kunming Shenzhen Guangzhou Source: The State Council, CICC Research 15 Beijing Tianjin Hefei Shanghai Zhengzhou Chengdu Chongqing Xiamen Wuhan Guangzhou Hangzhou Shijiazhuang Shenzhen Taiyuan Changsha Nanchang Fuzhou Qingdao Nanjing Yinchuan Jinan Kunming Lanzhou Haikou Hohhot Xi'an Xining Hub cities to outperform in the long run Property demand in hub cities is usually resilient in the long term, because agglomeration effect drives both economic upgrade and population inflow that lends continuing support to property demand and price. Hub cities saw strong population inflows in past five years 4.5 Increased population in (mn, LHS) 4.0 Population growth in (%, RHS) % 50% The hub cities we mention here are located on the connection of high-speed railway network, and are economic centers of metropolitan areas, namely Beijing, Tianjin, Shijiazhuang, Shanghai, Hangzhou, Nanjing, Shenzhen, Guangzhou, Chengdu, Chongqing, Xiamen, Zhengzhou, Wuhan and Changsha % 30% 20% 10% 0% Source: Wind Info, CICC Research 16 Satellites of hub cities saw strongest population inflow among tier-3 cities Satellites: Dongguan, Foshan, Huizhou, Suzhou, Baoding and Langfang Population flow (mn) Dongguan Foshan Huizhou Shantou Zhanjiang Zhongshan Jieyang Zhaoqing Heyuan Maoming Meizhou Jiangmen Qingyuan Yangjiang Yunfu Chaozhou Shanwei Zhuhai Pearl River Delta Population flow (mn) Suzhou Wenzhou Wuxi Taizhou Jiaxing Shaoxing Changzhou Jinhua Nantong Suqian Zhenjiang Zhoushan Huzhou Huai'an Lianyungang Yangzhou Yangtze River Delta Population flow (mn) Bohai Rim Handan Baoding Langfang Cangzhou Tangshan Xingtai Zhangjiakou Hengshui Chengde Qinhuangdao Shaoguan Taizhou Xuzhou Quzhou Lishui Yancheng Source: Wind Info, CICC Research 17 E Housing affordability keep improving House price over disposable income trends down House price over yearly disposable household income (LHS) Monthly repayment as % of monthly disposable household income (RHS) Downpayment as % of household savings (RHS) 200% 180% 160% % 120% % % 60% % 20% 0.0 0% Source: CEIC, CICC Research 18 Households leverage on homes still very low House price over disposable income trends down 90% 80% 70% 77% Mortgage loans as % of GDP (by end-2014) 60% 50% 46% 44% 44% 43% 42% 40% 30% 37% 31% 20% 18% 10% 0% U.S. Singapore U.K. Hong Kong France Germany Japan South Korea China Source: CEIC, CICC Research 19
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