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M & D FORUM Improving the Housing Investment in Western China XU Lei School of Economics, Wuhan University of Technology P.R.China, 430070 , Abstract: In recent years governmental and private investors have come to realize that, western China is in a favorable economic situation to lay a good foundation for the development of housing industrialization. Based on the comprehensive analysis of influencing factors on housing investment, this paper attempts to explore the characteristics of housing investment in western China. Under the climate of western development drive, the current situation of housing market in western China is then analyzed to represent the potential constraints of regional housing investment. In the light of these phenomena, innovative strategies are proposed to improve the efficiency of applying the financial funds in government investment. Keywords: housing, investment, western, China 1 Introduction During recent decades, regional economy has witnessed a lot unprecedented changes. The most remarkable one is that the western region has greatly lagged behind the more developed parts of China. Without a doubt, for such a large and diverse country as China, many factors can contribute to this regional inequality: geographically determined comparative disadvantages, historically determined development path and background, or central fiscal policy from political considerations. China’s stereotyped economic system is collapsing while the new one is being established, but the obstacle of the old system still exists. Therefore, China’s economy runs in the condition of structural unbalance and systematic distortion, which consequentially causes the variation of the short-term economic performance and other economic relations [1]. As a subsystem of the real estate industry, housing industry has a profound impact on the regional economy and the citizens’ livelihood. Owing to the traditional culture and consumption patterns in China, big fluctuations of housing price will cause tremendous economic reflections and even trigger nationwide chaos. Ju and Ouyang conduct a positive study on the relationship between house price fluctuation and consumption increase based on time serial data through 1987-2005 in China [2]. Fu, through a comparative analysis, concludes that real estate price has a tendency to increase with economy development [3]. Wang and Gao conclude that among the factors influencing demand, income elasticity is the largest, followed by price elasticity and interest elasticity; while among those influencing supply, both price elasticity and interest elasticity are fairly large [4]. As is generally accepted, housing prices could be considered as an indicator of the complicated social and economic relations, such as like household income level, population growth, and interest rate changes, etc. With the grand western development drive carried out systematically, regional government has taken real estates industry as a new drive for its economic growth, and has taken various policies to support the industry. Since the western housing market is very active, problems exist with the development of Chongqing’s housing industry, which include incomplete standardization of design and specifications; primitive construction technology; lack of new materials and prefabricated components, and low level of construction management [5]. With the reform of residential policies in China, housing investment becomes to be the great concern to many fields, including government agencies, the residents, the real estate developers and the banks. By increasing housing investment in the development of the urbanization of western China, this campaign aims to balance the inequality throughout the whole country. As the regional economy has developed in China, the sources of housing investments funds and dispersal methods have also changed. In the current climate of further development in western China, housing investment projects will be large scale, 343 M & D FORUM of wide interest to a variety of people, and will require large amounts of capital. This paper sheds light on such new concepts so as to provide some practical applications to help regional government to deal with the housing investment effectively, despite those inevitable limitations of western region in China. 2 Influencing Factors of Housing Investment In view of the present situations of national economy and features of housing market in China, the housing price determinants can be summarized and categorized as follows. 2.1 Governmental Policy Supports the Development of Housing Investment Under the stable political situation and effective urban planning, China housing market has witnessed a healthy growth. A series of compulsory regulations and economic motivation policies are carried out to guarantee the housing investment substantially. One of the major measures of Chinese government to intervene in housing market is controlling the supply of developable land and regulating the land price. Additionally, tax is assumed to be the important lever balancing the transaction cost and investment demand efficiently. The residential system has also been improved, consisting of commercial housing, affordable housing and low rent housing. 2.2 Economic Growth Stimulates the Development of Housing Investment Booming national economy not only creates more jobs, but also increases household incomes, which directly and indirectly enhance the residents’ purchasing power. With the growth of economy and higher income level, it is natural that residents attempt to enhance their living standards, which creates new and more housing demand. However, cautions should be taken to tell apart nominal increase and real increase when considering the impacts. What’s more, the financial environment directly affects the quality of residential investment and the enthusiasm of transactions, thus affecting housing prices. 2.3 Demographic Situation Affects the Development of Housing Investment Demographic situations mainly include the regional population quality and the family structure. The quality of the population directly affects the level of family income; and changes of family structure increases or decreases the number of households, causing remarkable change in housing demand and affecting housing price. 2.4 Environmental Infrastructure Influences the Development of Housing Investment It has been widely proved that the price of a specific real estate is extremely sensitive to its location. In addition, related attributes such as architectural style, appearance, design level, transportation facility amenities and construction quality will impact greatly the present value and investment potential of a building. Urban facilities and matched public installations should also be taken into consideration, which have a certain impact on consumer purchasing motivations. 3 Current Barriers of Housing Investment in Western China 3.1 Constraints of Economy System During the past decades, financial repression has always been a typical feature of China’s economic system, resulting in strong financial limitation. Dating back to the China’s gradual reform guideline, “keeping capital stock stable and reforming incremental capital” is the right path which means the economic reform will not touch or less touch the already existent interest pattern, but achieve new and effective resource allocation in those sectors which develop after reform. Frankly speaking, the gradual reform is necessary, because keeping the stability and development of State Owned Enterprises (SOEs) is significantly meaningful for the success of economy transition and economic growth. It can prevent 344 M & D FORUM China’s economy from depression so as to avoid the emergence of abundant bankruptcy, unemployment and huge pressure on governmental finance. By following such concept, the local government prefers to adopt such conservative way of housing investments, which undoubtedly have negative impacts on the regional economy. 3.2 Restricts of Regional Inequality Regional Inequality has long been a vexing problem for China. During the period of openness and global integration of the 1990's, China has witnessed a peak in regional inequality. This problem has become a contentious focus for academia, government and the public. In general, rising inequality may itself lead to tensions within a country and impede the prospects for future growth through a variety of social, political and economic mechanisms. As for those underdeveloped areas in western China, such inequality becomes the great obstacle when housing investment proceeds. It is plain that, the inborn weakness of western China definitely leads to financial insufficiency. Compared with other regions in China, the housing investment in western part has a large room to be improved. Lacking the funds, many housing investment projects cannot be exercised successfully, or some projects have to be postponed, etc. 3.3 Limitations of Unreasonable Investment Structure When facing the structure of housing investment, above all, the governmental or private investors must make a preference judgment based on various economic and political goals: which one is the first premise, which is the second one, which objective is emergent and which one can be postponed temporarily. In the transition of economic system, the boundary and range of investors blur. In practice, profitability overwhelms the wholeness. Driven by such economic benefits, government would rather pay for the expenditure of private investment, in order to prosper the regional economy. Consequently, there are no adequate funds to support and guarantee other sectors of public investment. Owing to the unbalanced and unreasonable spending, the essence of housing investment has been neglected to some extend, which gives rise to the existence of a strong inefficiency no matter of direct or indirect financing in regional housing investment. 4 Innovative Strategies on Enhancing the Efficiency of Housing Investment 4.1 Improve the Feasibility of Housing Investment Stimulated by the enormous profits, the local government tends to invest more projects which probably lead to a waste of regional resources. As for the development of western China, the government will make investment in those areas that the resources are very rare and precious. In this sense, at the very beginning of housing investment, the project feasibility researches ought to be an indispensable phase, which can correspondingly increase investment benefits and represent the interests of beneficiaries. Besides an injection of public funds, western China desperately needs a blood transfusion. In other words, guidelines for project construction are truly required for the housing projects of Western China, rather than simply considerable money. When it comes to the advisory and feasibility studies, the related government agencies would take part in the process of housing investment. Apparently, local governments and their agencies easily make optimistic appraisals to obtain government support and resources, especially for investments in those areas that market is unable or unwilling to provide. No doubt, the objectivity of the feasibility research is largely suspected. In order to enhance the feasibility of housing investment, only the non-governmental professional institutions or government agencies, which have no relationship with the beneficiary of the investment project, should be qualified candidates to conduct such studies. Going a step further, the open tenders for the project shall be favored to make sure that there is justice indeed. 345 M & D FORUM 4.2 Enhance Sustainable-Consciousness of Housing Investment Ethics cannot be over emphasized during the entire process of housing investment. Theoretically, ethical investment, or socially responsible investment (SRI) as this financing movement is more commonly known today, increasingly downplays ethics. According to some assumption, public investment, which largely funds and profits from environmentally unsustainable development, has great public costs to the environment that must be accounted for. In a world facing severe environmental problems, the housing investment must shift its focus from activity towards sustainable development. No longer being an optional consideration for housing investment, sustainability should be highlighted in any compelling investment case. To be specific, sustainability, as the crucial policy goal, entails the viability of natural systems, such as the global climate, and societal and economic issues that may impinge upon environmental management, such as public health and poverty [5]. Under the trend of global financial markets, the housing investment has a crucial impact on the state of the environment. Responsible governmental investors increasingly pitch their case for taking social or environmental issues into consideration, assuming that SRI will make society virtuous, more than merely economy profitable. They tend to concentrate on such issues, when they are aware of the urgency to maintain such harmonious investment environment. 4.3 Emphasize Assessment of Housing Investment During the further wave of grant western development drive, an assessment system needs to be established to secure the effects of housing investment. In a past housing investment, project objectives were set only for the construction phase. Intangible costs of the project were largely ignored. To improve the evaluation index system, every step of the investment project should be effectively controlled, including the construction phase and the operation of the facility after it is accomplished. A lot of concrete elements, such as project objectives, costs and benefit of the investment, influences to society and the environment should also be emphasized. Except for the primary objectives as “assisting the underdeveloped area” and “reducing unemployment”, overall benefits and sustainable development of the western China need to be the top concern nowadays. The deteriorating ecological system in Western China stimulates the importance of conducting evaluation studies, aiming to protect the natural resources and environment. 5 Conclusion In the further wave of grant western China drive we currently face, public finance investment must focus on optimizing the resources allocation. By illustrating the overall determinants of housing investment, political stability, economic development, population growth and ecological harmony have been highlighted. In view of situation in western China, local government must gradually strengthen the effects of housing investment projects economically and ecologically, to keep pace with these innovative concepts of housing investment. Housing investment is one of the critical ingredients of a region’s development. To carry out housing investment efficaciously, it is essential to make housing finance investment decisions with the assistance of sound feasibility analysis, a sustainability-oriented set of measures, and an assessment system guaranteeing the effects eventually. References [1]. CASS. “Distortion in national accounts, structural deflation and institutional barriers: an analysis of China’ current macroeconomic situation,” Economic Research Journal, 2000, vol.9, pp.3-17. [2]. F. Ju, and L. P. 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