key words: rising interest rates directly affect the indirect impact of real estate prices
On October 2, 21, the People's Bank of China raised the deposit and loan interest rates of financial institutions for one year and above by .25 percentage point. So far, the one-year deposit and loan interest rates have risen to 2.5% and 5.56% respectively, and the benchmark interest rate for loans for five years or above has reached 6.14%. For the central bank's continuous measures to raise interest rates, some people say that it is aimed at the real estate market. Some people say that its original intention is not aimed at the real estate market. In fact, for the majority of home buyers, speculators and real estate developers, the original intention is not important. What is important is what impact the interest rate will have on the real estate price, how it will affect it and the extent it may affect it.
1. The direct impact of rising interest rates on real estate prices
Real estate prices are the concentrated expression of the operation of the real estate market. Most of the main funds used for real estate development come from bank loans, and the interest rate directly affects the cost and profit of real estate development. As an external factor, the change of interest rate is bound to have a great influence on the real estate investment with huge capital investment. Therefore, the change of interest rate can play a certain role in regulating the real estate price.
1. Rising interest rates affect housing prices by restraining real estate investment. (1) Increase the opportunity cost of real estate investment. The interest rate reflects the opportunity cost level of real estate investment. The rising interest rate increases the opportunity cost of real estate investment, so it will restrain real estate investment to some extent when both deposit and loan interest rates rise. On the contrary, if the bank interest rate is lower, it shows that the opportunity cost of real estate investment is smaller, which in turn stimulates the investment in real estate. Therefore, the rise in bank interest rates has increased the opportunity cost of real estate investment, thus ultimately curbing real estate investment. (2) Restrain the investment of real estate investors. For ordinary buyers, the main purpose of their purchase is to improve their living conditions. After the interest rate rises, the repayment amount of such buyers will definitely increase, but the increased loan amount is very limited. As far as the current interest rate level is concerned, it has little substantial impact on buyers, and it is not enough to affect the mainstream purchasing power of buying houses for their own use. Those who urgently need to improve housing conditions and quality of life will also seek affordable housing in the market, and the rise in interest rates will have little inhibitory effect on it. For house speculators, after the interest rate rises, their financing costs increase, which changes their expectations of real estate prices. The increase in house prices must be extremely high to ensure that they can recover their investment principal. What's more, because the expectation of continuing to raise interest rates has a restraining effect on the real estate bubble, speculators can easily change their expectations of the trend of housing prices, and then change their capital investment. If they withdraw from real estate investment in large quantities because of the expectation of falling house prices, it will lead to a large number of vacant real estate, affect the change of supply and demand of real estate, and then lead to the change of house prices. For developers, the rise of loan interest rate makes developers face market risks. First of all, for investors, the increase of loan interest rate leads to the increase of financing cost of real estate investment, which is equivalent to the decrease of investment profit. This is likely to lead investors to shift their investment direction and reduce their investment in real estate. Secondly, the rising interest rate leads to the decline of people's purchasing power of real estate, which leads to the decline of effective demand in the real estate market, which in turn leads to the decline of real estate prices, which leads to the failure of real estate development enterprises to withdraw funds in time, increase their development costs, and reduce their profits or even losses, which will make the real estate industry start a new round of structural reform and adjustment.
2. Rising interest rates affect housing prices through the behavior choices of real estate developers. Influenced by the behavior choice of real estate developers, there will be a completely different situation after the interest rate rises. The rise of loan interest rate has increased the interest cost of real estate developers. There are only two possibilities to bear these new interest costs: one is for real estate developers to bear it themselves. In this way, the increase in financial costs may force developers to consider shortening the turnover period of real estate development, and to digest the increased costs caused by rising interest rates by increasing the speed of realizing real estate. In the case that the developer bears the increased cost, in order to absorb this part of the cost, it is necessary to speed up the turnover of the real estate, and the supply will increase accordingly. If the price remains unchanged, the effective demand will be insufficient, and the real estate will be idle, so the developer will inevitably reduce the price in order to recover the funds, and consumers will benefit. However, it was followed by a decrease in the profits of developers, and some developers withdrew from the industry. The other is to transfer the new interest cost and risk to the buyers, and transfer the new interest cost by raising the real estate price, so as to make up for the profit loss caused by the rising loan interest rate. In this case, real estate prices will not fall, but will continue to rise. This is contrary to our theoretical inference that "the rise of loan interest rate reduces the demand of property buyers for real estate, which leads to the decline of real estate prices". In 24, the central bank raised the loan interest rate by .27 percentage points. With the increase of interest rate, the costs of enterprises with high correlation with real estate, such as land and building materials industries, increased, and the cost of real estate increased, which further promoted the rise of house prices.
it is not difficult to see that the state has raised the financing cost of real estate development by raising the bank interest rate. If real estate developers "digest" the new costs, they will inevitably adopt the quantitative strategy of "small profits but quick turnover", which will increase the supply of real estate, affect the change of the relationship between supply and demand of real estate, and then lead to the decline of house prices. Under the mature or competitive market conditions, the house price is ultimately determined by the relationship between supply and demand rather than the cost of the supplier, that is, the rising development cost is difficult to directly transmit to the house price. But for China's real estate market at this stage, this situation is unlikely. On the contrary, if real estate developers refuse to "pay the bill" for the new costs, in order to ensure the recovery of the investment principal, they must push up the increase of house prices, and local governments will also contribute to the high house prices for certain interests, so house prices will continue to rise in a certain period of time. Second, the indirect impact of interest rate rise on real estate prices
Interest rate is the reward for the use of loan capital, so the rise and fall of interest rate has a great impact on financial capital. In the open financial market, the change of interest rate will change the flow of funds in the foreign exchange market and the securities market, and then affect the inflow of funds to the industry.
1. Rising interest rates affect house prices through the foreign exchange market. On the premise that other conditions remain unchanged, the rise of a country's currency interest rate will attract the inflow of external financial capital, form the demand for the country's currency in the foreign exchange market, and promote the exchange rate of high-interest currencies to rise. There are a large number of international hot money in the contemporary international financial market, which are extremely sensitive to changes in interest rates, and the inflow of these international funds will promote the rise of the RMB exchange rate. The appreciation of RMB means that China's economy is in good condition, which can create more investment opportunities and have higher returns. Foreign investors will expect the RMB to continue to appreciate, and a large number of short-term speculative funds will flood into China, and the real estate market will undoubtedly become a concentrated place for these funds. Especially after China has relaxed the restrictions on foreign investment in the real estate market, a large number of foreign funds will flood into China's real estate market through various channels, which will increase the demand expectation for real estate and make the demand curve of real estate move outward. Relevant information shows that when the house price rises by 5% and the RMB appreciates by 5%, the investment income of foreign investors will increase by 1.3%; When the house price rises by 15% and the RMB appreciates by 5%, the return on investment of foreign investors increases by 2.8%; When house prices rose by 15% and RMB appreciated by 15%, the yield of foreign investors increased to 32.3%. At present, overseas "hot money" is the most likely to have an important impact on the domestic real estate industry. If the RMB continues to appreciate or maintains a good expectation of appreciation, according to the profit-seeking nature of capital, a large number of "hot money" will enter the real estate market in China and push up the real estate price in China.
2. The rising interest rate affects the house price through the securities market. On the one hand, there is a certain dependence between securities prices and interest rates. Rising interest rates will increase securities prices and reduce profits, which will make the direct financing cost of real estate developers too high to be effectively supported by direct financing, thus restricting real estate developers' ability to obtain financial support from the securities market and reducing the supply of real estate. On the other hand, with the rise of interest rates, the profits of investors engaged in securities investment are decreasing day by day, and they will transfer idle funds to areas with appreciation potential, and real estate is their "potential stocks". As real estate, the value of real estate is relatively stable and generally will not depreciate. Especially with the rapid development of China's economy, people's expectations for the value of real estate will only rise rather than fall, and investors will choose to invest their funds in the real estate market, which will strengthen speculation on real estate, increase the demand for real estate, and indirectly promote the rise of real estate prices. These two forces affect housing prices by acting on the supply and demand sides of the real estate market.
theoretically, the central bank can lower the real estate price by raising the interest rate. However, there are many factors that affect the real estate market price. Interest rate is only one factor that affects the real estate price. Under other conditions unchanged, the increase in interest rate can increase the cost of real estate developers, thus affecting supply and demand, which may lead to a decline in housing prices. However, the price is not entirely determined by the cost, but by the power of both the supply and demand sides, so it is still uncertain whether the rise in interest rates can curb the rise in real estate prices or to what extent it can affect the real estate market prices. Above, we only discussed the impact of the central bank's interest rate increase on the real estate price, but not the impact of other factors on the real estate demand price and the impact of interest rate increase on the real estate supply price. Especially under the influence of the speed, mode and regional development strategy of China's current economic growth, it leads to the rapid economic growth of developed regions and cities, the continuous growth of population and the continuous growth of urban space, which will eventually lead to the rise of housing demand and housing stock. Therefore, it is difficult to draw a comprehensive conclusion whether the central bank can raise interest rates to curb the rise of real estate prices.