GZ Real Estate
A team of students at Zhongshan University (Sun Yat-sen) Lingnan IMBA program recently concluded some research and economic analysis of the Guangzhou real estate market as related to the recent government policy changes. Below are some of the results of this study. Ok, so it wasn’t all that profound. As this is only students’ work, ABD appreciates any and all comments on the results (as they’re likely way off). If you are interested in the full report which includes a quantitative regression analysis of downtown apartments prices and features (again, for what it’s worth), please let us know. If you are looking for a more “professional/official” analysis of this market, please contact the experts at CBRE. We’ll post more here as it’s generated.
The State Council along with the nine ministries announced three new policies in July 2006, No. 37, No. 166, and No. 177. These three policies had a direct effect on price, supply, taxation, credit sales, and overseas investment in the Guangzhou property market. For this qualitative analysis, five of the major initiatives are considered:
1. Units with size of 90 sqm or below must comprise 70% of the total construction area
2. Sales are restricted to foreign residents who have lived in China for over one year and must be used for self-use only
3. The loan interest rate was raised
4. The down-payment for a loan on housing property was increased
5. The taxable period was extended for the business tax on property sales
The overall effects of these new changes are:
1. Quantity of small (lower-priced) apartments will increase
2. Price and demand will decrease
By enacting these new policies, the government’s intended effect is to lower prices allowing the average consumer to afford housing. The following charts illustrate how this is possible.
The current state of the market is a high-priced supply shortage as discussed earlier. This creates a situation where producer surplus is significantly large while consumer surplus is small and deadweight loss to society significant. The government would like to restructure this economic situation so that the market demand and supply are at equilibrium and prices are lower.
The new policies are an attempt to lower prices while still increasing the number of smaller, more affordable apartments. Consumers therefore are less interested in buying high-price apartments as investment properties. The demand curve becomes less steep at the far left. Likewise, due to the quota for more small apartments in the lower-price sector, the supply on the bottom end increases. The equilibrium point after both of these adjustments forces the price to decrease while quantity continues to increase.
What does this all mean to the average apartment buyer, developer, or investor? We can’t exactly say. Or we could, but then we’d have to charge you. 
Seriously though, prices continue to rise and apartments continue to go up like mushrooms (really long and skinny like those white Japanese ’shrooms). Still a lot of money pouring in and more people moving into the city. Arnoud has some more opinions/facts on the Guangzhou market at his blog too. I’d take the time and quote him here but too tired. Maybe next time.
