Download Improving the Housing Investment in Western China

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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,
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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
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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.
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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
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[2]. F. Ju, and L. P. Ouyang, “Research on relationship between house price fluctuation and
consumption increase,” Statistics and Decision, vol.24, pp. 86-89, 2007 (in Chinese)
[3]. H. Fu, “Positive analysis of real estate price cycle: a long-term perspective based on international
comparison,” Price, vol.9, pp. 37-40, 2007. (in Chinese)
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[4]. J. M. Wang, and T. M. Gao, “Dynamic analysis on demand and supply function of Chinese real
estate market,” Soft Science, vol.4, pp. 69-74, 2004. (in Chinese)
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