Essays on The Development of Chinese Mortgage Market and Its Critical Issues for Future Development Case Study

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The paper 'The Development of Chinese Mortgage Market and Its Critical Issues for Future Development' is a great example of a Macro and Microeconomics Case Study. In1986 the China construction bank issued the first residential mortgage loan. In the next 12 years that followed, the mortgage market developed very slowly. In fact, the outstanding mortgage balance was only 22 billion Yuan by the end of 1997. The rapid development of China’ s mortgage market began in 1998 after the state council of the People’ s Republic of China enacted some laws.

These laws were aimed at extending housing reforms and accelerate housing construction. This laid down the foundation of current China’ s residential real estate market. Before most of the Chinese urban dwellers lived under a welfare housing system where the state provided low-quality accommodation at a low cost (Malpezzi, 2010). The 1997 communist party announced that it intends to phase out the welfare system and liberalize the market to encouraging people to own a house, kick-started the development of China’ s property market. The state provided an onetime subsidy and a mortgage incentive, which helped faster adoption of the phase-out.

The phase-out ended in August 1999, all units built after January 1999 were bought and not allocated. This move set China’ s mortgage markets in motion. Since then the mortgage lending rate in China has been expanding at an accelerating rate, becoming an important driver of the country’ s economy. Furthermore, the establishment of mortgage financing and government stimulus package is implemented in 2008 to curb financial crises encouraged the growth (Rajwani & Kumar, 2015) Consequently, the volume of the mortgage loan issued has drastically grown over the last two decades.

In 1999, China’ s residential mortgage loans to individuals doubled the previous year to reach Yuan 126 Billion. As of 31st August 2002, the outstanding balance reached Yuan 763 billion, which was almost 34 times the balance in 1997. The mortgage market was the reason behind the booming of the Chinese residential housing sector development and sustained china’ s economic growth. According to the national bureau of statistic data, in 2011, 25% of the fixed asset investment was real estate investment. Furthermore, real estate investment accounted for 16% of the country’ s GDP.

Besides, real estate's direct contribution to the economy suggests that its overall significance is even greater (Plunkett, 2011). However, it is important to note that the drivers discussed above are due to the government response and growth of China’ s credit market. Other sustainable drivers such as demographic trends, raising income, upgrade demands, and lack of alternatives investment opportunities have also supported the growth in this sector. One of the significant drivers of the rapid growth of China’ s mortgage market has been the rural-urban migration. By 2011, urbanization ratios in China - a portion of the population living in urban areas- were more than 50 % from 35% in 1997 (Ortiz, 2014). Demographic divided was another driver of the rapid development of china’ s mortgage market.

The population aged 15-65 years otherwise known as the working-age population rose from 66% to 77%, between 1995 and 2011. Moreover, the individual and household income per capita income have increased significantly since the liberalization of the housing markets. This can be evident by the nominal urban disposable income per capita which rose by a compound annual growth of 10.4 % from the US $ 929, per year to US$ 3500, from 1999 to 2010.

This has fueled the demand for housing in China (Feinberg, Kuehn, Mckernan, Wissoker, & Zhang, 2015). Furthermore, the increased in upgrade demand, increased the demand for. Prior to this, the urban dwellers lived in small houses, which were of poor quality. The increased desire to own larger homes was the engine behind the growth of the residential real estate markets (Deng & Fei, 2009).

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