A Study Of the Real Estates In America and China

The status quo and the development of real estate

The status quo

The boosting of the real estates began gradually after the abolishment of the Housing Distribution System in 1998 in China. According to insiders, the soaring price is just “an start” and will continue to rocket in near future. China’s real estate is still in its premature stage, which will require a pretty long maturation period to have a stable development. However, the U.S real estate industry has already kept its long-run stability and formed a set of valuable rules for success, which China should take a close look at.

The development

The earliest real estate development was initiated in Guangdong and Shenzhen, which are geographically closely related to Hong Kong, so naturally they copied Hong Kong Mode that features “high pricing” from land to end user. Ever after the abolishment of the Housing Distribution System, China mainland has subconsciously embraced this development mode without any further consideration until the rocketing price becomes unaffordable to ordinary people.

However, the story didn’t end there. One big bolster for the soaring price, which even the municipal government claims:” We are not capable of any help”, (according to Xinhua News Agency, June 7^th) is that there’s only one operator that decides everything in all processes in this industry while in U.S Mode, there’re different operators for different processes such as land purchasing, construction, intermediary service. Different tasks are systematically allocated to different operators through bidding and operators only gain reasonable profits from the work they do. While in China, the only operator will not be happy to share the profits with other operators, which makes a great contribution to the soaring price.

After “the godfather of China’s real estate industry”, FengLun’s suggestion that China should make a transformation from Hong Kong Mode to U.S mode, some domestic operators have tried this new path, Wan Tong Corporation being one of those pioneers. They adopted the mode to list all different tasks and made of use of international finance system. So far, they’ve scored glowing success in domestic market.

The finance system

Financing bodies

U.S Mode has a lot of financing bodies that provide stable cash flows into real estate industry to guarantee the healthy development and reduce the risk that real estate operators have to bear, thus a reasonable price can be remained for all citizens. These financing bodies include commercial banks, depositing institution, life insurance company, endowment fund, intermediary serve company, trust company, Syndicate company and some institution under federal government. Most of them receive preference treatment such as tax break from the government through purchasing state bonds, while in China, there are only three financing bodies: state-owned commercial banks, Public Housing Fund organization and real estate department that has enforced stock-sharing system. So far there’s no legislation established to regulate the housing market’s maximum profits, which leaves the price unreachable for ordinary people.

Financing mode

American real estate industry bases its financing environment on a stock-market-dominated system where the capital needed by the company comes from sophisticated stock market together with a small proportion that is contributed through banking. This system features debt-to-equity swap, active mortgage sub-market and a security system to ensure housing mortgage.

China does not have a perfected financing system for real estate, which gives ground to the profuse housing loans. The limited financing channels also constrained the development of real estates. Last but not least, there’s no real independent intermediary service company so far in housing industry.

The efficiency of both modes

America, being one of the most mature economies, has a sophisticated legal system, a large scale of exchange market and different competitors in the market. The low costs of real estate information search also gives a wider range of options for real estate developers as well as the consumer ends. China, which is still during a period of economic transformation, is still working on its marketing economy maturation. Lagged-behind legislation, limited scale of market and little competition drag our development away from further progress. High costs to build a database of real estate information also benefit the operators to score high price and keep customers quiet.

Pricing Control

Americans do not have pricing control in their free marketing economy while China has a whole set of formalities to check on the benchmark pricing of land, the named pricing of land and named pricing of apartments. Why does the China’s housing price go to such an extreme except all the efforts we made? There is more than just one answer. The imperfect finance system blocked many potential entrants from entering the market where intensive capital is essential. Then the few real estate developers can just name the price and not worry about the apartments being unmarketable, because the supply is far less than the demand, the only choice customers can make is go to the few real estate developers where the prices are equally unreasonably high. Other factors would be inadequate regulation, a lack of supervision system, ideology of the customer’s perceived value etc.

Last but not the least, it’s high time that that government stood out and push forward legislation to stop the ridiculous housing price, if necessary, drag down the hardened developers to help the domestic real estate market develop in a healthier and more sustainable way, which all the people would be happy to see.