Text / lincaiyi, columnist of sina financial opinion leader (wechat official account kopleader)

Whether from the perspective of demographic factors, income factors, monetary environment or credit policy, the conditions supporting the continuous rise of real estate prices in the future no longer exist. In this case, it is only a matter of time before the expectation of rising house prices changes.

The ceiling on rent depends on income rather than house prices

According to the statistics of major cities around the world, the rent accounts for 40-45% of the income of the rental group, which is the upper price limit that the tenant can afford. In other words, if the rent price exceeds 40% of their income, such groups usually give up their existing houses and choose worse living conditions, such as living further, living in the basement, sharing or even group rent. At present, there are two types of urban rental groups: first, young people who have just entered the society and participated in work (including college, undergraduate, master and doctoral graduates); Second, although working for many years, low-income people with low income and unable to afford a house, or a very small number of foreign enterprise executives with strong job mobility.

According to the data of the National Bureau of statistics, in 2017, the number of people living in private housing accounted for 67.3% of the floating population, with a total number of nearly 160 million. According to the survey statistics, in terms of education background, the proportion of bachelor’s degree is the highest among the rental population, with about 52%, followed by college and master’s degree, accounting for 23% and 14% respectively. These three types of education together account for about 90% of the rental population, of which 78% are under the age of 30. It can be seen that the first group of people, that is, young people who have just entered the society and participated in work, are the main force of urban rental at present.

In the first tier cities, the average monthly income of such groups is about 5000-8000 yuan. From their average income level, it can be inferred that the rent ceiling that most renters in China’s first tier cities can afford is about 2200-3600. Once the rent is higher than this level, they may choose to rent together or other poor living space. The rental income ratio is less than 30%, and only 16.8% can afford higher rents.

Theoretically, rent is essentially determined by supply and demand, but for the stock market, the change of rental demand is very important, and the demand depends not only on the rental population, but also on the income level of tenants.

The ratio of rent to house price determines whether a large number of investors are willing to hold houses for a long time to obtain rental income

From the perspective of the supply of rental housing, the rental housing in developed countries such as the United States, Japan and Germany accounts for more than 35% of all houses, while only 17% in China. On the one hand, the low proportion of rental houses is related to the Chinese people’s attention to real estate. No other country in the world likes houses more than traditional Chinese people and regards houses as the most important asset in life. On the other hand, the relatively low proportion of rental houses is related to the rapid rise of house prices since the commercialization of housing. When the rise of house prices has become the main income or even the only income of concern for the purchase of housing, the rental income of housing has been ignored for a long time.

Will the rental housing supply increase significantly in the future? In the long run, it depends on the ratio of rent to house price, that is, the return on capital of investing in real estate. For the incremental market, the change of housing supply is very important, and the supply depends not only on the expectations of investors for future house prices, but also on the ratio of rent to house prices. The ratio of rent to house price is higher than risk-free income, which is an important factor for landlords to hold investment houses for a long time and stably.

At present, in the prime location in the center of Beijing and Shanghai, the rental yield is as low as 1.5% - 1.8%, which is seriously lower than the risk-free return. Once the expectation of house price rise is no longer, most investors will choose to sell the real estate and replace it with other assets with higher yield.

In short, in terms of the current rent to house price ratio, the cash flow generated by real estate investment is not attractive to investors.

Judging from the growth rate of residents’ disposable income, there is limited room for rent rise in first tier cities in the short term

In the past five years, with the slowdown of macroeconomic growth, the growth of disposable income of Chinese residents has also decreased accordingly. It fell to 9% in 2014 and then decreased year by year. It is expected that the growth rate in 2018 will be 7.5%. From the downward trend of income growth, it is not difficult to infer that the growth rate of rent in the future is relatively limited.

As long as there is no serious inflation, there is a high probability that house prices will fall

First of all, from the population, age structure, urbanization rate and other factors, the era of rapid population growth supporting the simultaneous growth of housing demand has ended. Since 2015, not only the number of married home buyers aged 25-39 began to decline, but also the number of home buyers aged 35-49 for housing improvement. The decline in the natural population growth rate, combined with the reduction of rural to urban population, has significantly reduced the basic driving force of housing demand growth.

Secondly, in 2017, the proportion of residents’ total liabilities in disposable income increased from 31% in 2008 to 79%. The sharp increase in residents’ debt ratio combined with the decline in the growth rate of disposable income has seriously weakened residents’ housing purchasing power.

Third, with the rise of interest rate center and the end of housing credit preferential policies, the loose monetary environment supporting the continuous rise of house prices no longer exists.

Fourth, the purchase and loan restriction policies in the first and second tier cities have severely restricted the demand for investment house purchase.

To sum up, no matter from the perspective of demographic factors, income factors, monetary environment or credit policies, the conditions supporting the continuous rise of real estate prices in the future no longer exist. In this case, it is only a matter of time before the expectation of rising house prices changes.

Therefore, we can expect: in the future of first tier cities, house prices will fall, but rents will not soar.

(the author introduces: chief economist of Hua’an fund.)