Text: Ren Zeping’s team
Introduction
Real estate is the mother of the cycle, with nine real estate in ten crises. We propose an analysis framework of "real estate in the long term, land in the medium term, and finance in the short term". According to international experience, excessive financialization is the source of risks, and people-to-land linkages with and financial stability are the fundamental solutions. Frequent hikes in interest rates or excessive financial tightening may burst the bubble. This article studies the birth, madness, crash and inspiration of the world's major real estate bubbles, including the real estate bubble and the Great Depression in Florida, the 20 years of Japan's real estate bubble and the lost from 1986 to 1991, the real estate bubble in Hainan, China from 1992 to 1993, the real estate bubble in Southeast Asia and the Asian financial crisis in 1991 to 1997, and the real estate bubble in the United States from 2001 to 2008 and the subprime mortgage crisis in . The past is not as good as smoke, and the years change human nature remains unchanged.
Summary
Looking at the five major real estate bubble events in global history, we can draw the following nine revelations:
1. Real estate is the mother of the cycle. From the perspective of driving economic growth, the real estate industry plays a crucial role in the macro economy, whether in developing countries or in developed countries. Every economic prosperity is mostly related to consumer investment driven by real estate, while every economic depression is mostly related to the bursting of the real estate bubble, such as Japan around 1991, Southeast Asia around 1998, and the United States around 2008. From the perspective of wealth effect, in typical countries, the market value of real estate is generally 2-3 times that of annual GDP, and is 50% of the total variable price wealth, which is far from comparable to other asset markets such as stock markets, bond markets, commodity markets, and collectibles markets. Take Japan as an example. In 1990, the market value of all real estate in Japan was five times that of the United States and twice the total market value of the global stock market. The land price in Tokyo alone was equivalent to the land price across the United States. Take China as an example. In 2018, real estate investment accounted for one-quarter of the total social fixed asset investment, and real estate-related investment accounted for nearly half. The national real estate market value was about 321 trillion yuan, which was 3.6 times the GDP that year, accounting for 71% of the market value of stocks, bonds and housing.
2. Ten crises nine real estate. Since real estate is the mother of the cycle, it has a huge impact on economic growth and wealth effects, and is a typical high-leverage sector. Therefore, the major economic crisis in global history is mostly related to real estate. For example, the Great Depression in 1929 was related to the bursting of the real estate bubble and the subsequent banking crisis. The 20 years of loss after the collapse of Japan's real estate in 1991. After the bursting of the Southeast Asian real estate bubble in 1998, most economies fell into the middle-income trap . The US subprime mortgage crisis in 2008 has not yet emerged from the shadow of the world. In contrast, the abnormal fluctuations in the US stock market in 1987 and the abnormal fluctuations in China in 2015 have a much smaller impact on the economy.
3. The formation of previous real estate bubbles was supported by fundamentals such as economic growth, urbanization, and residents' income at the beginning. The demand for commercial housing includes housing demand and speculative demand. Housing demand is mainly related to urbanization, residents' income, population structure, etc. It reflects the commodity attributes of commercial housing, and speculative demand is mainly related to monetary injecting and low interest rates. It reflects the financial attributes of commercial housing. Most real estate bubbles were supported by fundamentals at the beginning. For example, the Florida real estate bubble in the United States from 1923 to 1925 was related to the prosperity of the US economy and the prosperity of tourism. The Japanese real estate bubble from 1986 to 1991 was related to the successful transformation and long-term prosperity of the Japanese economy. The Southeast Asian real estate bubble from 1991 to 1996 was related to the "Asian economic miracle" and rapid urbanization.
4. Although the times and countries are different, the crazy real estate bubbles have been stimulated by excessive liquidity and low interest rates. Since real estate is a typical high-leverage sector (regardless of the mortgage loans on the demand side or the development loans on the supply side of real estate companies), the housing market is extremely sensitive to liquidity and interest rates. Over-liquidity and low interest rates will greatly increase the speculative demand and financial attributes of real estate, and be separated from the fundamentals of residents' income and urbanization.In 1985, Japan signed the " Square Agreement " and continued to cut interest rates significantly in order to avoid the negative impact of the appreciation of the yen on the domestic economy. From 1991 to 1996, Southeast Asian economies flowed in sharp international capital under the financial liberalization . After the bursting of the US Internet bubble in 2000, it continued to cut interest rates significantly in order to stimulate the economy. China has seen three waves of real estate cycles rebound since 2008. In addition to fundamental support such as medium-to-high economic growth and rapid urbanization, each time it is related to excessive currency issuance and low interest rates. This wave was particularly obvious from 2014 to 2016.
5. Government support, financial liberalization, lack of financial supervision, and out of control of bank lending have played a role in fueling and adding fuel to the fire. The government often stimulates real estate for the purpose of economic development. Around 1923, the Florida government launched a large-scale infrastructure to attract tourists and investors. After 1985, the Japanese government took the initiative to cut interest rates to stimulate domestic demand. After Hainan established the Special Administrative Region in 1992, it encouraged development. In 2001, the Bush administration implemented the "Households with their houses" plan. Financial liberalization and lack of financial regulation have caused too much currency to flow into real estate. Around 1986, Japan accelerated financial liberalization and liberalized corporate bond financing. From 1991 to 1996, Southeast Asian countries accelerated the opening of capital accounts and led to a large amount of international capital inflows. From 2001 to 2007, the rise of shadow banking in the United States led to excessive financial innovation. Due to the high leverage nature of real estate, bank lending is out of control, and the rise in housing prices will further boost banks to increase lending, and even actively convince customers to mortgage loans, zero down payments, and leverage . The banking industry has been deeply involved in all real estate bubbles, resulting in the real estate bubble crisis that is both a financial crisis and an economic crisis.
6. Although the times and countries are different, the collapse of the real estate bubble has been related to currency tightening and interest rate hikes. risks are rising, and the bigger the bubble, the greater the possibility of bursting and the deeper the adjustment. The Bank of Japan raised interest rates five times in a row since 1989, restricting real estate loans and cracking down on land speculation. In 1991, Japan's real estate bubble burst. On June 23, 1993, Zhu Rongji announced the termination of the listing of real estate companies and the comprehensive control of bank funds into the real estate industry. On the 24th, the State Council issued the "Opinions on the Current Economic Situation and Strengthening Macroeconomic Control", and the Hainan real estate bubble burst. In 1997, Southeast Asian economies collapsed, international capital withdraws rapidly, and the real estate bubble burst. Feder has raised the federal funds rate 17 times in two years since June 2004. Subprime mortgage defaults increased significantly in 2007, and the subprime mortgage crisis broke out in 2008.
7. If there is a lack of fundamental support for population, urbanization and other fundamentals, the adjustment and recovery time will be longer after the real estate bubble burst. There were two rounds of bubbles in Japan's real estate in 1974 and 1991. The first adjustment around 1974 was small and the recovery was strong. The reason was that the medium-speed economic growth, urbanization space, and the number of people who were suitable for home purchases at a high level provided fundamental support; however, the second adjustment around 1991 was large and lasted for a long time, because the long-term economic slow growth, the urbanization process was coming to an end, and the population aging was aging. After the bursting of the US real estate bubble in 2008, it did not fall into the lost 20 years like Japan, but housing prices hit a new high, mainly because of the United States' open immigration policy, a healthy population age structure, a flexible and dynamic market economy and innovative mechanisms.
8. Every time the real estate bubble collapses, the impact is profound and far-reaching. 1926-1929 The Great Depression caused by the bursting of the real estate bubble and the banking crisis eventually escalated from a financial crisis, an economic crisis, a social crisis, and a political crisis to a military crisis, causing a devastating blow to human society. After the collapse of Japan's real estate in 1991, it was a 20-year loss, with economic downturn, poor highs, shrinking wealth of residents and long-term deflation. After the Hainan real estate bubble burst in 1993, it had to deal with unfinished buildings and non-performing loans for a long time, and the local economy was sluggish for a long time. It has been 10 years since the subprime mortgage crisis in 2008. The US economy has only begun to emerge from the recession after three rounds of QE and zero interest rates. To this day, the impact of the subprime mortgage crisis on the world has not been completely eliminated.
9. Real estate is the hardest bubble. It should land softly and prevent hard landings, exchange time for space, be vigilant and take measures to control the real estate bubble, and accelerate the construction of a long-term mechanism with people-land linkage and financial stability as the core. "Real estate looks at population in the long term, land in the medium term, and finance in the short term." China's economy and residential investment have bid farewell to the era of high growth, and real estate policies should adapt to the characteristics of the new development stage of "slowing total volume and structural differentiation". In the long run, although the proportion of the main home buyers aged 20-50 in China peaked in 2013, taking into account the urbanization process, the growth of residents' income, the miniaturization of the average household size of households, housing renewal, etc., China's real estate market still has a lot of room for development in the future. In the medium term, regional differentiation is obvious, population continues to migrate to metropolitan areas, and the problems of separation of people and land and mismatch between supply and demand are still serious. The real estate bubble has a very obvious negative effect: the sharp rise in housing prices deteriorates income distribution, increases the social speculative atmosphere and curbs the enthusiasm of enterprises to innovate; real estate has non-productive attributes, and excessive credit investment in real estate will squeeze out investment in the real economy; excessive housing prices increase social production and living costs, which can easily cause the hollowing out of the industry. At present, measures should be taken to avoid the bubble trend of rising housing prices from fundamentals, and at the same time prevent excessive tightening and puncture of bubbles. The country is time to change space and promote market-oriented secondary housing reform. You can consider: reform the "people-land linkage" with the increase in permanent population as the core, optimize land supply; steadily promote real estate tax reform and promote land fiscal transformation; implement long-term and stable housing credit and financial policies to stabilize market expectations; enrich supply entities, optimize housing supply structure, and accelerate the filling of the shortcomings in rental housing. believes that through measures combining long-term and short-term and secondary housing reform, China's real estate market is expected to achieve a soft landing and long-term healthy development.
Directory
1 United States 1923-1926 Florida real estate bubble
1.1 Background: Economic prosperity, hedonism , consumer credit
1.2 Fanaticism: government support, banking boost, speculation prevails
1.3 Crash and impact: Hurricane , housing prices plummeted, stock market crash, the Great Depression in 1929, spreading into a world economic crisis
2 Japan 1986-1991 real estate bubble
2.1 Formation: economic prosperity, square agreement, yen appreciation, low interest rate
2.2 Fanatic: Banks are fueling, international hot money inflow, speculation is prevalent
2.3 Collapse: Real estate bubble collapses, Japanese financial defeat
2.4 Impact: Lost twenty years
3 China Hainan real estate bubble 1992-1993
3.1 Formation: Special Zone experiment, speech on the southern tour, housing reform
3.2 Fanatic: wealth myth, passing flowers
3.3 Collapse and impact: macro-control , monetary tightening, unfinished buildings, non-performing loan
4 Southeast Asia's real estate bubble from 1991 to 1996 and the Asian financial crisis in 1997
4.1 The whole story of the Asian financial crisis in 1997
4.2 Background conditions of the Asian financial crisis: financial liberalization, international capital inflows and fixed exchange rate
4.3 The birth and collapse of the Southeast Asia real estate bubble before and after the financial crisis
4.3.1 Thailand
4.3.2 Malaysia
4.3.3 China Hong Kong
5 The United States' real estate bubble from 2001 to 2007 and the subprime mortgage crisis in 2008
5.1 Formation: The Internet bubble burst, "Households have their own house" plan, low interest rates, shadow banking
5.2 Crazy: government stimulus, banks boost, short-term financing long-term investment
5.3 Crash and impact: interest rate increase, subprime mortgage default, international financial crisis, Volker rules
6 The revelation of previous real estate bubbles
Text
real estate is the mother of the cycle, with nine real estate in ten crises. This article studies the birth, madness, crash and inspiration of the world's major real estate bubbles, including the real estate bubble and the Great Depression in Florida, the 20 years of Japan's real estate bubble and the lost from 1986 to 1991, the real estate bubble and the loss of China's Hainan real estate bubble from 1992 to 1993, the real estate bubble and Asian financial crisis in Southeast Asia from 1991 to 1997, and the real estate bubble and subprime mortgage crisis in the United States from 2001 to 2008.The past is not as good as smoke, and the times change human nature remains unchanged.
1 The Florida real estate bubble from 1923 to 1926
The world's earliest verified real estate bubble occurred in Florida, USA from 1923 to 1926. This real estate speculation frenzy triggered a major collapse in the stock market on Wall Street and led to the great global economic crisis and depression in the 1930s with the United States as its source.
1.1 Background: Economic prosperity, hedonism, consumer credit
The economy is super prosperous. 20th century, the United States rose sharply on the world stage as a superpower. Since the last 30 years of the 19th century, the US economy has shown a leap forward development trend. After entering the 20th century, the US economy quickly surpassed the old capitalist countries such as Britain and France. In 1913, on the eve of World War I, U.S. industrial production accounted for more than one-third of the world's total, exceeding the total of Britain, France, Germany and Japan.
The United States is far away from the battlefield of World War I. The special needs of war greatly stimulated the US economy and greatly enhanced domestic production capacity. At the same time, factors such as the increase in labor productivity, the close relationship between the government and large enterprises, and the formation of credit consumption have all promoted the super economic prosperity throughout the 1920s.
Hedonism is emerging. By the early 1920s, the United States' economy was booming, with many job opportunities and generous treatment. In addition to capital salary, there were also vacations. Everyone was enjoying the prosperity brought by the economic development. At the same time, the middle class began to afford private cars and could travel freely, and no longer be subject to trains. Due to the development of the economy, materialism, materialism and hedonism have become popular. Americans who are optimistic by nature are now spending money like flowing water - buying a car, buying a house, and taking a vacation - Americans who are immersed in happiness believe that America in the 20th century will "prosper forever."
Americans' optimism is first reflected in stocks and real estate. At that time, stocks rose every day, and many investors became rich, and the real estate market was also thriving. It seems that as long as you make the right investment, anyone can get rich.
Modern consumer credit system was established. As the United States entered the consumer society, the Federal Reserve Act amendment of 1916 and the McFadden Act of 1927 began to allow National Bank to issue non-agricultural real estate loans, while previous real estate loans only apply to farms. At the same time, installment finance, especially automobile finance, has become popular. The establishment and development of the modern credit consumption system provides an institutional basis for the formation of a consumer society. According to statistics from the U.S. Bureau of Economic Research, between 1919 and 1929, the proportion of Americans' total consumption in GNP increased from 67.63% to 73.17%, of which the consumption of durable goods (especially automobiles) increased by 75.9% under the promotion of the credit system.
Real estate demand has increased significantly. The urbanization process and business prosperity jointly stimulated the demand for real estate. Driven by the popularization of automobiles and road improvements, the US real estate industry developed rapidly in the 1920s. From 1925 to 1927, due to the multiple promotions of economic prosperity, population increase and urbanization, the real estate industry experienced crazy expansion. Compared with 1919, the issuance of new home construction permits in the United States rose by 208% in 1925, reaching its peak. Although housing prices in some areas fluctuated greatly at that time and attracted a large amount of speculative funds, a large-scale real estate bubble was not formed from a national perspective. Between 1921 and 1925, housing prices in Washington urban areas increased by only about 10%.
Subsequently, the US real estate industry reached its peak and gradually entered a downward channel. The large-scale expansion of the real estate industry at that time was mainly due to the large demand generated by new immigrants and urbanization. In 1926, the valuation of newly started buildings reached US$12.1 billion, equivalent to 12.41% of GDP that year. From 1919 to 1927, the proportion of real estate investment in GDP reached an average of 10.52%. However, since 1926, the real estate industry has continued to decline, which is not only reflected in the decline in prices, but also the construction area of houses has also been decreasing.
1.2 Fanaticism: Government support, banking boost, speculation prevails
(1) Tourism rise
Florida is located in the southeastern end of the United States, close to Cuba . The climate of Florida is similar to that of Hainan Island, China. It is warm and humid in winter, and it has become a winter resort for Americans. Especially Palm Beach Island, north of Miami, Florida, has become a paradise for American wealthy people to gather. Palm Beach is located near the Mexican warm current in the east. The island is lush with grass and trees. The beach is covered with tall palm trees. Its superior marine environment and climate ranks among the top among the world's many first-class tourist attractions. During the peak tourist season, wealthy Americans from New York, with economically developed but severe winter cold, travel south one after another. Because there are so many rich people gathered on the island of Palm Beach, some people vividly say that "a quarter of the wealth in the United States flows here."
Before World War I, due to its remote location, the average land price in Florida has been much lower than that in other parts of the United States. However, the rapid popularity of automobiles has changed this situation. After the end of the First World War, many car-owned tourists flocked to Florida in the winter to relax and take a break there. Florida has thus become a city of entertainment for rich people, with illegal casinos and bars filling Miami, the most prosperous city in Florida.
The winter vacation boom has had a great impact on Florida. Before 1920, most people who came to Florida were elderly people, rich people, or patients who came here to recuperate. But as Florida's tourism industry began to flourish, many younger middle classes began to come to Florida. For them, they would rather buy a cottage for a winter vacation here or buy a piece of land as an ideal place to settle later. So real estate gradually flourished. Many keen investors saw this and came here to buy real estate. Florida has become an ideal investment place in the minds of many people.
(2) The government supports
The Florida government and local authorities are doing their best to improve local transportation and public facilities, and even borrow money from high interest rates to build infrastructure to attract tourists and investors. By the early 1920s, various construction projects were sprung up everywhere in the 200-kilometer area off the coast of Miami, and various construction projects sprung up like mushrooms after a rain. golf courses, private clubs, leisure villas, and sea apartments - the entire Florida became a large construction site.
(3) Speculation is prevalent
As housing prices soar, herd effect makes housing speculation a trend. There is a data that can illustrate the madness at that time: According to statistics, by 1925, more than 2,000 real estate companies appeared in Miami. At that time, the city had a population of only 75,000, including 25,000 real estate agents. On average, one in every three residents specialized in real estate transactions. The Miami Herald became the thickest newspaper in the world at that time because of its huge number of real estate advertisements. Investing in Florida has become one of the ways for Americans to get rich. The train ships to Miami were crowded with Americans who dreamed of making money.
After a time, countless wealth was envied to Florida, and houses on both sides of downtown streets were bought at high prices, and even unplanned land in suburbs were sold in districts. In fact, these speculators who buy houses don’t care about where the house is located at all, because they buy houses not for their own use, but for waiting for it to rise and sell it, and get the difference from it.
1923-1926, Florida's population increased geometrically, and the price of land increased even more astonishingly. A piece of land on Palm Beach was worth US$800,000 in 1923, US$1.5 million in 1924, and US$4 million in 1925. At that time, the deposit for buying land was 10%, so for every 10% increase in the land price, the profit of speculators was 100%. Compared with land, the price of houses has increased by even more astonishingly. There are many cases where a house has risen by four times in a year, and the house prices in Miami have risen by 5 to 6 times in three years.
In just a few years, land prices in Florida rose by almost three times and there was no sign of a price stopping rising. The real estate fever began to spread to states near Florida, and land prices across the country rose.
(4) Banks boost
As housing speculation becomes a trend, the banking industry, which has always been conservative and calm, has also joined. As real estate prices continue to rise, banks no longer focus on real estate prices by paying loans based on borrowers' financial capabilities.Investors can easily get loans from banks, and local Florida banks are lenient loan terms to cheer on the real estate heat. Most people only need a 10% down payment when buying a house, and the remaining 90% of the house payment comes entirely from bank loans. Investors only need to pay a certain amount of interest and can wait for a good time to resell the house, and the selling price is often more than twice the original price. After paying off the loan, the profit you earn can reach more than ten times.
1.3 Crash and impact: hurricane, plummeting housing prices, stock market crash, the Great Depression of 1929, spreading into the world economic crisis
In the craziest years of real estate, people's catchphrase was "If you don't buy today, you won't be able to buy tomorrow"!
The psychological basis of speculation is to expect future price increases. Once this expectation moves to an irrational path, the "herd effect" in speculative demand will become increasingly obvious, and asset prices will be pushed up step by step according to people's expectations, and risks are also continuing to accumulate. The high price at this time is actually very fragile. As long as there is any disturbance, the next buyer of the re-trading transaction will no longer appear, and the bursting of the bubble will be inevitable.
In September 1926, a hurricane hit Florida, which eventually caused the Florida real estate bubble to burst. A major hurricane swept Florida at 125 miles per hour, and the entire area immediately turned into ruins. The hurricane-induced tsunami flattened two Florida cities, and the situation was terrible. The natural disaster destroyed 13,000 houses and 415 people died. The U.S. Weather Service described the hurricane as "probably the most destructive hurricane to hit the United States in history." After the hurricane, the once prosperous state of Florida was in a mess, with sea water rising to the second floor in some places, and people had to climb to the roof to escape.
At the end of 1926, an inevitable collapse finally came, and Miami's real estate transaction volume shrank sharply from $1.07 billion in 1925 to $140 million in 1926. Many people who later entered the housing market began to be unable to afford their monthly mortgage loans, so the bankruptcy chain reaction began. People have sold out their real estate, causing housing prices to plummet. After four years of persistent fanaticism, the Florida real estate bubble was finally blown out by a hurricane.
The fundamental reason why hurricanes can blow out the Florida real estate bubble is that local real estate prices are too high, and hurricanes are just an inducement. Once the real estate bubble bursts, it will lead to the breaking of the entire capital chain, a large number of real estate companies will face bankruptcy, banks will expose huge amounts of bad debts, and even eventually trigger a financial crisis. After the bursting of the real estate bubble in Florida, many businesses and banks went bankrupt, and some bankrupt entrepreneurs and bankers committed suicide or went crazy, while others became beggars. It is said that the famous " McDonald's godfather" in the American business world was penniless because of this crisis, and was forced to be a paper cup salesman for 17 years. Stock Legend Investor Jesse Livermore also participated in this game. He even believed that Florida's land prices would continue to rise, which shows that in an unprecedented big bubble, the stock gods could not maintain their rationality.
Immediately afterwards, the bubble intensified the US economic crisis, which led to the collapse of Wall Street stock markets and ultimately led to the Great Depression of the world economic crisis in the 1930s.
2 Japan's real estate bubble from 1986 to 1991
1985 Japan's economy was unprecedentedly prosperous, and "buy the United States" and "Japan can say no" are prevalent. Stimulated by low interest rates, excess liquidity, financial liberalization, and international capital inflows, Japanese real estate gave birth to an unprecedented bubble from 1986 to 1990. The land price in Tokyo alone was equivalent to the land price across the United States. Then, under the pressure of interest rate hikes, control of real estate loans, land transactions, and capital outflows, the real estate bubble collapsed, and then house prices entered a long journey of decline, and the Japanese economy fell into a lost 20 years.
2.1 Formation: Economic prosperity, square agreement, yen appreciation, low interest rate
(1) In the early 1980s, Japan's economy was unprecedentedly prosperous
Since the 1960s, Japan has maintained rapid economic growth. At the 1964 Tokyo Olympics and the 1966 Osaka World Expo, Japan showed the world the image of a country revived from the shadow of defeat.
In the early 1980s, Japan successively surpassed Italy, France, Britain and Germany, becoming the world's second largest power after the United States. Products made in Japan are spread all over the world, and Japanese companies invest and acquire a large amount of investment and acquisitions around the world. Japan's trade and manufacturing industry are close to the United States, and it surpasses the United States in electronics, automobiles, steel, shipbuilding and other fields. Japan's economy has reached half of the United States, with foreign exchange reserves exceeding US$400 billion, accounting for 50% of the world's foreign exchange reserves. In 1985, Japan replaced the United States as the world's largest creditor. American banks, supermarkets, and even the Hollywood Columbia Film Company and the New York landmark building, the Rockefeller Building, have all become the Japanese's possessions.
The Japanese economy has entered a dazzling heyday. Behind the unprecedented prosperity, a crisis is brewing.
(2) Square Agreement: Conspiracy? Open conspiracy?
1978, the second oil crisis of broke out. Due to the sharp rise in energy prices, there has been a serious inflation in the United States. In the summer of 1979, Paul Volker took office as chairman of the Federal Reserve. In order to curb inflation, he raised the federal funds rate three times in a row and implemented a tight monetary policy. The policy of
has raised the nominal interest rate of US federal funds to about 20%, attracting a large amount of overseas funds to flow into the United States, causing a sharp appreciation of the US dollar. From the end of 1979 to the end of 1984, the dollar exchange rate rose by nearly 60%, and the exchange rate of the dollar against major countries even exceeded the level before the collapse of the Bretton Woods system.
The strong US dollar has led to a significant increase in the US foreign trade deficit. In order to improve the imbalance of international payments, the United States hopes to increase the export competitiveness of its products through the depreciation of the US dollar.
In September 1985, the finance ministers of five developed countries including the United States, Japan, the Federation, Germany, France, and the United Kingdom and the central bank presidents held a meeting at the Plaza Hotel in New York, deciding that the five governments jointly interfere in the foreign exchange market and make the US dollar fall against major currencies in an orderly manner to resolve the huge trade deficit of the United States, known in history as the "Platform Agreement". After the signing of the "Platform Agreement", the five countries began to sell US dollars in the foreign exchange market, driving a selling frenzy among market investors. The US dollar has continued to depreciate significantly, and the exchange rates of major currencies in the world against the US dollar have risen to varying degrees. Among them, the yen has the largest appreciation, reaching 86.1% in three years.
This is not the first time the United States intervenes in the foreign exchange market. In December 1971, Japan signed the Smithson Agreement with the United States. According to the agreement, the exchange rate of the yen against the US dollar appreciated from 1 dollar to 360 yen to 1 dollar to 308 yen, an increase of 18%. This round of exchange rate reform led to the rise in Japan's land prices in 1973, but it only lasted for one year due to the impact of oil crisis . The sharp appreciation of
yen has improved the yen's position in international monetary system , promoted a significant increase in Japan's foreign investment, and provided opportunities for Japanese companies to expand overseas. But at the same time, the Japanese economy has also planted a bomb of a bubble.
(3) Low interest rates and relaxation of financial controls
Due to concerns about the appreciation of the yen to increase the cost and prices of Japanese products, the Japanese government has formulated economic expansion policies to increase domestic demand and relax domestic financial controls. From January 1986 to February 1987, Japan Bank lowered interest rates five times in a row, reducing the discount rate of Central Bank from 5% to 2.5%, which was not only the lowest in Japan's history, but also the lowest in major countries in the world at that time. Driven by monetary easing, the year-on-year growth rate of Japan's M2 rose from 8% to more than 12% between 1985 and 1990, but the year-on-year growth rate of CPI was not high, which gave the Bank of Japan an illusion.
1986 Japan further liberalized the financial market, and enterprises can issue a variety of corporate bonds for financing. According to statistics, the amount of financing for Japanese companies increased by 5.5 times between 1985 and 1989.
Amid the background of low interest rates and excessive liquidity, a large amount of funds flowed to the stock market and the real estate market. People borrow money from banks to invest in stocks and real estate with considerable returns. As a result, the stock price soared and land prices soared.However, at that time, Japan had completed urbanization construction, and the domestic urbanization rate exceeded 90%. A huge bubble is being born.
2.2 Fanaticism: Banks are fueling the fire, international hot money inflows, speculation is prevalent
(1) Banks actively issue loans
In the 1980s, Japanese banks began to implement reforms in bank capital management. In order to promote the internationalization of banks, the Japanese government decided to implement double standards: domestic business can follow the 4% standard of its own country, while banks with overseas branches must implement 8% international standards. Under this requirement, in addition to continuously replenishing capital , the Bank of Japan must also adjust its bank asset structure.
Compared with general corporate loans, real estate mortgage loan has a lower risk weight. This means that banks issue the same amount of loans, and real estate mortgages only require half the capital. So Japanese commercial banks invested their funds in the mortgage field.
The huge bubble in the real estate industry has stimulated the growth of mortgage loans for financial institutions. Banks have invested heavily in the real estate industry and issued a large number of mortgage loans to encourage land holders to speculate. During the period of the expansion of the real estate bubble, the growth of real estate loans is faster than the money supply. According to the Bank of Japan's "Monthly Economic Statistics Report", from 1984 to 1989, the average annual growth rate of banks' mortgage loans was 19.9%, far exceeding the 9.2% loan growth rate during the same period. The Quarterly Statistics Report of Legal Person Enterprises in the Province of Tripitaka shows that most of the external funds required by Japanese companies to purchase land at the same time come from bank loans.
In the stage of continuous rising housing prices, the banking industry underestimated the risks contained in mortgage loans in real estate, and even issued unsecured credit loans. Some senior bank executives use the scale of lending as employee assessment indicator. As a result, the proportion of real estate mortgage loans in the total loans of banks across Japan has increased year by year. With the rise of land prices and stock prices, borrowers' mortgage capabilities have increased and off-book assets have increased. These companies that use real estate mortgage loans to raise funds will use most of their funds to purchase land, stocks, etc. that may appreciate in the future, and continue to push up housing prices.
From 1986 to 1991, the bank's real estate mortgage balance doubled. From 1984 to 1991, the Japanese urban land price index rose by 66.1%, while the consumer price index rose by only 12.6% during the same period. The high land price was completely separated from the growth of the real economy, and the bubble was growing increasingly.
(2) International hot money poured into
At the same time, the influx of international hot money accelerated the expansion of Japan's real estate bubble. After signing the Plaza Accord, the yen maintains an appreciation level of 5% every year, which means that as long as international capital holds yen assets, it can obtain exchange rate returns of more than 5% through exchange rate changes.
The keen international capital has made a quick comeback, calling for the wind and rain in the Japanese stock and real estate markets. The inflow of cheap international capital has exacerbated the pressure on the appreciation of the yen, causing rapid rise in stock prices and housing prices, thus attracting more international capital to enter Japan for speculation, and the bubble is getting bigger and bigger.
(3) Money-driven, speculation is prevalent
As a large amount of funds poured into the real estate industry, Japan's land prices began to soar wildly. According to survey statistics released by the Japan Department of Land and Resources, in 1985, the price index of commercial land in Tokyo was 120.1, and soared to 334.2 in 1988, an increase of nearly twice in just three years.
In 1990, the land price index of the six major urban centers of Tokyo, Osaka, Nagoya, Kyoto, Yokohama and Kobe rose by about 90% compared with 1985. Back then, the land price in Tokyo alone was equivalent to the land price in the United States, creating an unprecedented real estate bubble in the world.
However, the annual growth rate of Japan's nominal GDP during the same period was only about 5%. Due to the rapid rise in land prices, the development of the real industry has seriously affected. The high price of construction land makes it difficult for many factory companies to expand their scale; excessive land prices have also brought serious obstacles to the government's urban construction; high housing prices have made ordinary Japanese unable to afford their own housing... Japan's bubble economy is getting further and further away from the real economy.
2.3 Collapse: The real estate bubble collapsed with a bang, and Japan's financial defeat
Under the pressure of the double bubble of the stock market and the housing market, the Japanese government chose to actively squeeze the bubble, and took very strict administrative measures to adjust tax and monetary policies. In the end, the stock market and housing market bubble burst one after another.
(1) Tightening monetary policy
As inflationary pressure began to appear in 1989 (3%-4%), and stock prices and house prices accelerated, the Bank of Japan raised interest rates five times in 1989, and the interest rate of commercial banks borrowing from the central bank rose from 2.5% in February 1987 to 6% in August 1990. At the same time, the growth rate of money supply has declined sharply.
At the beginning, the Japanese government did not realize that squeezing bubbles would cause such great harm. If we knew in advance, the policy might change.
(2) Strict control on real estate loans and land transactions
In July 1987, the Japanese Ministry of Finance convened a hearing on relevant financial institutions to understand the activities of financial institutions in the real estate market. Since then, the Ministry of Finance has issued administrative guidance, requiring financial institutions to strictly control loan projects on land. The specific requirement is that "the growth rate of real estate loans cannot exceed the overall loan growth rate." Affected by this, the growth rate of real estate loans in various financial institutions in Japan fell rapidly, from 36.6% in June 1987 to 10.2% in March 1988. By 1991, Japanese commercial banks had actually stopped lending to the real estate industry.
(3) Adjustment of land income tax
Before the tax system was adjusted in October 1987, owning land for less than 10 years was considered "short-term holding", while more than 10 years were considered "long-term holding". After the tax system was adjusted, holding for no more than 2 years was considered "ultra-short-term holding" and was subject to key supervision.
(4) The stock market bubble was the first to burst
The sudden turn of Japan's monetary policy first pierced the bubble in the stock market. January 12, 1990 was the darkest day in the history of the Japanese stock market. On that day, the Nikkei index stumbled and the Japanese stock market plummeted 70%. People vaguely remember that just half a month ago on December 31, 1989, the Nikkei Index reached a brilliant high of 38,915 points. However, with the 1990 New Year as a turning point, the Japanese stock market fell into a 20-year bear market.
In September 1990, the Nikkei stock market lost an average of 44%, and the relevant stocks fell an average of 55%. The sharp decline in Japanese stock prices has caused huge losses to almost all banks, businesses and securities companies.
(5) The huge real estate bubble collapsed, and the bankruptcy of the company caused a large amount of real estate it owned to pour into the market. Suddenly, the real estate market was oversupply and housing prices showed a downward trend.
At the same time, as the yen arbitrage space shrinks, international capital begins to flee. In 1991, the Japanese real estate market began to collapse, and the huge real estate bubble began to burst from Tokyo and quickly spread throughout Japan. The land and houses cannot be sold at all. There are no residents in the completed buildings, and vacant houses are everywhere, and real estate prices have plummeted.
In 1992, the Japanese government introduced a "land price tax" policy, stipulating that all land holders must pay a certain proportion of taxes every year. During the real estate boom, owners who had accumulated a large amount of land sold their land one after another, and the Japanese real estate market immediately entered an ice age of "oversupply". The superposition of several factors has accelerated the overall collapse of Japan's real estate economy. The plummeting real estate prices have led to the bankruptcy of a large number of real estate companies and affiliated companies. In 1993, the total debt of Japanese real estate bankrupt enterprises reached 3 trillion yen.
Immediately afterwards, non-bank financial institutions, as the protagonist of land speculation, went bankrupt one after another due to their large number of bad debts. As a result, banks that provide funds to these institutions also have huge non-performing debts. That year, 21 major banks in Japan announced that they had generated $110 billion in bad debts, one-third of which were related to real estate.
In July 1991, the incident of false savings certificates of Fuji Bank was exposed. Immediately afterwards, Donghai Bank and Concorde Saitama Bank were also exposed to have the same problem. A large number of bank scandals have been exposed, causing a serious credit crisis in the Japanese banking industry. Several years later, several large banks went bankrupt one after another.
The collapse of the "land myth", the bankruptcy of small and medium-sized banks, the exposure of securities scandals... The successive blows have made the Japanese people lose confidence in the capital market. Since then, due to the impact of the Asian financial crisis and subprime mortgage crisis, the Japanese real estate market has never returned to its glory.
(6) A long journey of decline
Japan's land prices reached their highest point in 1991, and then began a long journey of decline. According to data from the Japan Bureau of Statistics, Japan's land prices continued to fall since 1992. As of 2015, the prices of residential land in the six major cities fell by 65%, and all cities fell by 53%.
The decline in major cities is significantly greater than that in small and medium-sized cities. Data from the Japan Bureau of Statistics shows that between 1992 and 2000, the prices of residential land in the six major cities in Japan fell by 55%, while small and medium-sized cities (cities other than the six major cities) fell by only 19.4%.
In 2008, survey data from the Ministry of Land, Infrastructure, Transport and Transportation of Japan showed that the vacancy rate of houses in Japan reached 13.1%, higher than 9.4% in 1988, the highest level so far. Despite the difficult adjustments for 20 years, Japan's real estate market remains weak.
2.4 Impact: Lost Twenty Years
After the bursting of the Japanese real estate bubble, the economy fell into lost Twenty Years and long-term deflation, residents' wealth shrank significantly, corporate balance sheets deteriorated, banks' non-performing loan rates rose, and government debt was high. Japan's political influence has declined, and the dream of a superpower has been shattered.
(1) The reason for the large adjustment of the bubble in 1991 and the long duration: the turning point of the economic growth rate of people of appropriate age
Japan's housing price bubble in 1974 and 1991 are comparable, so why was 1991 a big turning point?
If we compare the formation and burst of the real estate bubble in Japan around 1974 and around 1991, we can find that the first adjustment around 1974 was small and the recovery was strong, because the medium-speed economic growth, urbanization space, and the number of home buyers of appropriate ages maintained a high level, etc. provided fundamental support.
1974-1985 Although Japan bid farewell to the rapid growth, it still achieved a medium-speed growth of about 3.5% per year. In 1970, Japan's urbanization rate was 72%, and there was still some room for it. After the number of people aged 20-50 years old approached the peak in 1974, it did not turn downward and remained at a high level between 1974 and 1991.
However, the second adjustment around 1991 was large and lasting for a long time, because of the long-term low-speed economic growth, the urbanization process was coming to an end, and the number of people who were eligible to buy houses of appropriate age decreased significantly and rapidly. After 1991, Japan's economy grew by only about 1% per year, with severe aging and a significant increase in population dependency ratio. In 1990, Japan's urbanization rate had reached 77.4%. After 1991, the number of people aged 20-50 has dropped sharply and rapidly.
(2) After the real estate bubble burst in 1991, Japan's economic growth rate and inflation rate both fell down and fell into the high-income trap. From 1992 to 2014, Japan's GDP growth averaged 0.8%, and CPI grew by an average of 0.2%. In the decade before the crisis, Japan's GDP growth averaged 4.6%, and CPI was an average of 1.9%.
It is worth noting that such "achievements" were achieved only under the great stimulation of the government. Counter-cyclical regulation has led to a significant increase in Japan's government debt ratio and a significant expansion of the central bank's balance sheet. Japan's 10-year Treasury bond yield fell to negative values, reflecting that the future prospects are still not optimistic.
(3) Private wealth shrinks
In his book "The Great Recession", Gu Chaoming mentioned that the wealth loss caused to Japan by the decline in real estate and stock prices reached 1500 trillion yen, which is equivalent to the total of Japan's national personal financial assets. This number is also equivalent to the total GDP of Japan in three years. From the figure below, we can see that the proportion of real estate is undoubtedly greater than that of stocks.
(4) Corporate balance sheet deteriorates
Real estate and land are important assets and collaterals for many companies. With the plunge in the prices of these assets, the balance sheet of Japanese companies has deteriorated significantly. In order to repair their deteriorating balance sheets, companies had to work hard to repay their debts. After 1991, despite the sharp drop in interest rates, Japanese companies raised funds from outside continued to decrease. By the mid-1990s, Japanese companies turned negative from bond markets and bank net financing funds.
(5) Bank bad debts have increased significantly
Real estate prices have dropped sharply and economic downturns have caused Japanese banks to rise sharply. Between 1992 and 2003, 180 financial institutions in Japan declared bankruptcy [see Yoshino Naoki (2009), International Economic Review]. The bad debt data of all Japanese banks rose from 12.8 trillion yen in 1993 to 30.4 trillion yen in 2000 [see Li Zhongmin (2008) International Economic Review].
(6) The government debt is high and the continued recession of the economy and the government's countercyclical regulation have made the Japanese government's debts high. In 1991, Japan's government debt/GDP proportion was 48%, lower than the United States' 61%, Italy's 99%, slightly higher than Germany's 39.5%. In 2014, Japan's government debt/GDP proportion was 230%, far higher than the United States (103%), Germany (71.6%), Italy (132.5%), etc.
(7) International status declined
1991, Japan's economy fell to a standstill, and there were significant changes in the relative strength of other countries. Judging from the total GDP denominated in US dollars, between 1991 and 2014, Japan increased by 30%, the United States increased by 194%, China increased by 26.3 times, and Germany increased by 114%. Between 1991 and 2014, Japan's GDP accounted for 26% of the United States, and China became the second largest economy.
3 China's Hainan real estate bubble from 1992 to 1993
1992, the total number of people was only 6.558 million, and more than 20,000 real estate companies appeared on Hainan Island. In just three years, housing prices have increased by more than 4 times. The final legacy is more than 600 "unfinished buildings", 18,834 hectares of idle land and 80 billion yuan of backlog of funds. The bad debts of the four major state-owned commercial banks alone are as high as 30 billion yuan. Developers fled or went bankrupt, and the non-performing loan ratio of many banks once reached more than 60%. "The ends of the world, the corners of the sea, the unfinished building" became the three major landscapes of Hainan for a time. Hainan has to work hard to clear unfinished buildings and bad loans for a long time.
3.1 Formation: SAR experiment, speech on the southern tour, housing reform
1988, on the occasion of the tenth anniversary of reform and opening up, China faces the problem of how to further deepen reform and expand opening up. At that time, four special economic zones in China, namely Shenzhen, Zhuhai, Xiamen and Shantou, were established, but these four cities all belong to coastal urban economies, but the vast rural areas still need to be explored. Therefore, the central government needs an ideal experimental field. In 1988, Hainan's rural population accounted for more than 80%, and its industrial output level was low. Per capita GDP was only equivalent to 80% of the national average. One-sixth of the population lived below the poverty line, which basically met the conditions of the central reform experiment, especially the unique geographical conditions it had.
On August 23, 1988, Hainan Island, known as the "Cape and End of the World", separated from Guangdong Province and established the 31st provincial administrative region in China. Haikou, a small seaside city with a population of less than 230,000 and a total area of less than 30 square kilometers, has become the capital of China's largest special economic zone and has also become the "ideal country" for gold diggers across the country.
In early 1992, Deng Xiaoping delivered a speech in the southern tour, and then the central government proposed to accelerate the pace of housing system reform. The effects of Hainan’s provincial establishment and special zones have been fully released.
The real estate market in Hainan Island suddenly heats up.
3.2 Fanaticism: wealth myth, beat the drum and pass the flowers
A large amount of funds were invested in real estate. At its peak, more than 20,000 real estate companies appeared on this island with a total number of only 6.558 million, with an average of one real estate company per 300 people.
Among all the people who speculated in real estate at that time, there were the Central Army including COSCO Group, COFCO Group, and Nuclear Industry Corporation, as well as the miscellaneous army composed of well-known enterprises across the country. Most of the money for speculation came from state-owned banks.
According to statistics from the Office of the Hainan Provincial Working Group for Disposing Backlog of Real Estate, Hainan Province's real estate investment in 1989 was only 320 million yuan. From 1990 to 1993, real estate investment increased by 143%, 123%, 225%, and 62% respectively over the previous year, with the highest annual investment amount reaching 9.3 billion yuan. The proportion of real estate investment in each year accounts for the total fixed asset investment in that year was 22%, 38%, 66% and 49%.
Of course, these companies are not all about building houses. In fact, most people are playing an ancient game of "beating the drum and passing the flowers".
In 1992, the real estate investment in Hainan Province reached 8.7 billion yuan, accounting for half of the total fixed asset investment. The real estate development area in Haikou alone reached 8 million square meters, and the land price soared from more than 100,000 yuan/mu in 1991 to more than 6 million yuan/mu. In the same year, the economic growth rate of Haikou City reached an astonishing 83%, and another hot city, Sanya, also reached 73.6%. 40% of Hainan's fiscal revenue comes from the real estate industry.
According to statistics from the "China Real Estate Market Yearbook (1996)", in 1988, the average price of commercial housing in Hainan was 1,350 yuan/square meter, 1,400 yuan/square meter in 1991, soared to 5,000 yuan/square meter in 1992, and reached the peak of 7,500 yuan/square meter in 1993. In just three years, the growth has exceeded 4 times.
Beihai City, Guangxi Province, which is across the sea from Hainan, is not inferior to real estate development. In 1992, more than 1,000 real estate companies emerged in this small town, which originally had only 100,000 people, and more than 500,000 speculators stationed in Beihai across the country. After taking turns, the land approved by the government for tens of thousands of yuan per mu can be sold to more than 1 million yuan per mu, and the land approved by the local government for a year reaches 80 square kilometers. So much so that Vice Premier Zhu Rongji, who came to inspect the following year, couldn't help but remind the local government: "Beihai is different from my Shanghai... (Beihai Construction) must do what it can."
In this unprecedented gamble, the government, banks and developers formed a close iron triangle. During the bubble formation period, led by the four major commercial banks, the capital of bank funds, state-owned enterprises, township enterprises and private enterprises continued to pour into Hainan through various channels, with a total of no less than 100 billion yuan.
Almost all developers have become the debtors of banks. Smart developers put the money earned from reselling land or property spending into their pockets, and mortgaged the houses that were still on the drawings to the bank at a high price.
Since speculative demand has accounted for more than 70% of the market, some houses have even remained in the design drawing stage and have been sold for several moves.
Every player wants to quickly pass the "flower" in his hand to the next person before the game ends. But not everyone has good luck.
On June 23, 1993, the final whistle suddenly blew. Zhu Rongji, then Vice Premier of the State Council, delivered a speech, announcing the termination of the listing of real estate companies and the full control of bank funds entering the real estate industry.
3.3 Crash and impact: macro-control, tightening of monetary funds, unfinished buildings, non-performing loans
On June 23, 1993, Zhu Rongji, then Vice Premier of the State Council, delivered a speech, announcing the termination of the listing of real estate companies and comprehensive control of bank funds entering the real estate industry. On the 24th, the State Council issued the "Opinions on the Current Economic Situation and Strengthening Macroeconomic Control", with 16 strong regulatory measures including strictly controlling the total scale of credit, increasing deposit and loan interest rates and treasury bond interest rates, recovering illegal lending funds within a time limit, reducing infrastructure investment, and cleaning up all projects under construction.
Money has been tightened in full swing, and the Hainan real estate craze, which has been advancing all the way, was immediately drained from the bottom of the pot. The legacy of this regulation is to leave behind a backlog of commercial housing in Hainan Province, which accounts for 0.6% of the country's total population. The province has more than 600 unfinished buildings and more than 16 million square meters, 18,834 hectares of idle land, and 80 billion yuan of backlog of funds. The bad debts of the four major state-owned commercial banks alone are as high as 30 billion yuan. In the following years, Hainan's economic growth rate fell sharply.
The Beihai, separated by a sea, has even accumulated funds of up to 20 billion yuan, and the area of unfinished buildings exceeds that of Sanya. It is known as China's "bubble economy museum".
developers fled or went bankrupt one after another, and banks suddenly became the largest developers. Many banks' non-performing loan rates were once as high as more than 60%. When the bank began to deal with non-performing assets, it was discovered that many mortgage projects had actually dug a big hole, and the real estate projects that were mortgaged at sky-high prices were just "castles in the air". What's worse is that many real estate projects still owe a lot of project payments, and some even mortgaged them many times.
According to statistics, China Construction Bank alone has dealt with 267 bad real estate projects, with a reported construction area of 7.6 million square meters, of which the existing house area is nearly 80,000 square meters, accounting for 20% of Hainan's real estate stock, and the cash recycling ratio is less than 20%.
Some old brokerage firms such as Huaxia Securities and Southern Securities also suffered heavy losses due to a large amount of direct real estate investment in Hainan.To this end, the China Securities Regulatory Commission had to completely stop direct investment from securities companies in April 2001.
In August 1995, the Hainan Provincial Government decided to establish Hainan Development Bank to solve the financial difficulties caused by many trust investment companies in the province due to large-scale investment in real estate. But in just two years and ten months, there was a bank run in Hainan Development Bank. On June 21, 1998, the central bank had to announce the closure of the sea-issuance, which was the first provincial commercial bank in New China to be closed due to the payment crisis.
Since 1999, Hainan Province has spent a full seven years on its work to deal with the backlog of real estate. As of October 2006, the province has disposed a total of 23,353.87 hectares of idle construction land, accounting for 98.17% of the total idle amount, and 4.4482 million square meters of backlog of commercial housing, accounting for 97.6% of the total backlog.
"Everything, the sea, the unfinished building" became the three major landscapes of Hainan for a time.
4 Southeast Asia's real estate bubble from 1991 to 1996 and the Asian financial crisis in 1997
1997, Southeast Asian economies maintained sustained high growth and created the "Asian miracle". However, stimulated by global low interest rates, financial liberalization, international capital inflows, and lack of financial supervision, a large amount of credit flows into real estate, giving birth to a bubble. Subsequently, under the influence of the Federal Reserve's interest rate hike, international capital outflows, and a fixed exchange rate collapse, the Asian financial crisis broke out and the housing market bubble burst. Since then, except for a few regions such as South Korea, the transformation has been successful, most Southeast Asian countries are still stagnant in the middle-income stage.
4.1 The whole story of the Asian financial crisis in 1997
After World War II, Southeast Asian countries and regions such as Japan, South Korea, Taiwan, Indonesia, Malaysia, and Thailand have achieved continuous rapid growth, and were once called the "Asian miracle". But the Southeast Asian financial crisis in 1997 interrupted this process, and the economies in these regions generally experienced a cliff-like decline and the exchange rate depreciated sharply. Since the beginning of the new century, except for Japan, only a few regions such as South Korea have successfully transformed, and most countries are still stagnant in the middle-income stage.
From the late 1980s to the early 1990s, due to the impact of the Persian Gulf War, the third oil crisis, the bursting of the Japanese economic bubble, the collapse of the Soviet Union, the US economy performed sluggishly and the US dollar index weakened. At the same time, the economies of Thailand, Malaysia, Indonesia, Singapore and other countries achieved rapid growth of about 10% during this period, attracting a large amount of international capital to flow into South Asia, and the scale of foreign debt increased significantly. The debt maturity of these regions is seriously mismatched, and a large amount of medium- and short-term foreign debt has entered the real estate investment field. Real estate speculation is prevalent in Thailand and other countries, and asset bubbles are constantly expanding. In terms of exchange rate policy, while expanding financial liberalization and abolishing capital controls, Thailand and other countries still maintain a fixed exchange rate system, providing conditions for international speculative capital.
Entered the mid-1990s, the US economy began to recover strongly, the Federal Reserve under Greenspan raised the federal funds rate to deal with possible inflation risks, and the US dollar entered the second strong cycle. The currencies of South Asian countries that adopt a fixed exchange rate system are forced to appreciate, and their export competitiveness is weakened. At the same time, the RMB has depreciated sharply, and China has shown strong competitiveness in attracting foreign investment and increasing exports. Exports of South Asian countries fell significantly around 1996, and current accounts deteriorated rapidly. In 1997, the Thai baht, the Philippine peso, the Indonesian rupiah, the Malaysian ringgit, the Korean won and others became the targets of attacks by international speculative capital. Large amounts of capital flowed out, the fixed exchange rate system was forced to give up, and the currency depreciated significantly. The stock market was hit hard, the real estate bubble burst, the bad debts of banks increased sharply, and financial institutions and enterprises went bankrupt on a large scale. In August 1998, the Russian Central Bank announced the postponement of repayment of foreign debts and suspension of national bond trading. The Russian debt crisis broke out, and the financial crisis gradually escalated into an economic and political crisis. After the crisis, most Southeast Asian economies did not return to pre-crisis growth levels.
4.2 Background conditions of the Asian financial crisis: financial liberalization, international capital inflows and fixed exchange rate
International capital inflows after financial liberalization. In the 1980s, Southeast Asian countries were influenced by the theory and practice of financial deepening and financial liberalization in developed countries, and successively launched financial reforms dominated by financial liberalization.The Philippines announced the abolishment of foreign exchange controls in 1962 and allowed foreign capital profits to be freely remitted in 1986. Malaysia increased the proportion of foreign investors allowed to hold shares in their domestic joint-stock companies in 1986. In the same year, Indonesia also relaxed its control over capital accounts. By 1994, major Southeast Asian countries had basically achieved free convertibility under capital accounts, and their financial markets were basically fully open. After the mid-1980s, Japan's economy grew slowly and the capital interest rate was low, so a lot of Japanese domestic funds began to invest in Southeast Asia. By the early 1990s, international capital was optimistic about the Southeast Asian economy, and a large amount of international private capital flowed into Southeast Asia.
However, due to the unstable domestic economic foundation, incomplete regulatory system and insufficient regulatory capabilities, its immature capital market was opened to the outside world prematurely, and the management of capital projects was excessively relaxed, which provided an opportunity for the frequent flow of international hot money in and out of large inflows and speculative attacks.
implements a fixed exchange rate system that is pegged to the US dollar. Most Southeast Asian countries implement a fixed exchange rate system, and their currencies are indirectly or directly pegged to the US dollar. After the "Platform Agreement" in 1985, the US dollar began to depreciate against major Western currencies, and the currencies of Southeast Asian countries also depreciated, greatly enhancing the market competitiveness of their export products. However, the problem with the fixed exchange rate system is that the peg country and the currencies of the peg country form a complete linkage. After 1995, the "new economy" era of the United States came, and entered a golden age where sustained economic growth coexisted with low inflation and low unemployment. The US dollar began to appreciate and drove the currencies of Southeast Asian countries to appreciate together. As a result, the export growth rates of these countries stagnated, while imports surged, and trade and current accounts generated huge deficits.
When Southeast Asian countries' trade deficits increase and currencies actually depreciate, they did not adjust their exchange rates in time and still maintained a fixed exchange rate system pegging to the US dollar, causing speculators to sell their local currency and rush to buy foreign exchange, forcing the central bank to announce the implementation of a floating exchange rate, causing the local currency to depreciate. This is the direct cause of the financial crisis in Southeast Asia.
4.3 The birth and collapse of the real estate bubble in Southeast Asia before and after the financial crisis
Financial liberalization has promoted international capital to enter Southeast Asia one after another. In 1995, Japan's financing balance to mainland China, Indonesia, South Korea, Malaysia, the Philippines, Taiwan, Thailand and other places was US$109 billion, while the loan balance of banks in European countries was US$87 billion. In 1996, Japan's loan balance to Southeast Asia was US$114 billion, while European banks increased to US$116 billion. Since the second half of 1996, due to the strengthening of the US dollar, Southeast Asian currencies began to appreciate simultaneously, resulting in a general decline in export growth rate (Southeast Asian countries generally belong to outward economies), overcapacity, decline in yields and increase in bank non-performing assets, causing a large amount of industrial funds to flow to the stock market and the real estate market, leading to the formation of a bubble.
1986-1994, the proportion of bank loans flowing to stock markets and real estate in various countries became increasingly larger, including 33% in Singapore, 30% in Malaysia, 20% in Indonesia, 50% in Thailand, and 11% in the Philippines. Real estate prices in Southeast Asian countries rose sharply, with Indonesia rising about 4 times between 1988 and 1991, and Malaysia, the Philippines and Thailand rising about 3 times between 1988 and 1992.
4.3.1 The formation of Thai
bubbles. Thailand is the origin of the Southeast Asian financial crisis. Since the 1980s, Thailand has made export-oriented industrialization the focus of its economic development. To address the problems of infrastructure backwardness and shortage of funds, the Thai government has carried out a series of reform measures, including opening capital accounts. At that time, Thailand's land prices were low, the labor supply was sufficient, and the wages and consumption levels were relatively low. Coupled with various preferential policies of the government, a large amount of foreign capital quickly poured into Thailand.
With the massive expansion of bank credit, real estate prices in big cities such as the capital Bangkok have risen rapidly, and the super high profits of the real estate industry have attracted a large amount of international capital. The two interact with each other and the real estate bubble has expanded rapidly. In 1989, the total amount of housing loans in Thailand was 45.9 billion baht, and by 1996 it exceeded 790 billion baht, an increase of more than 17 times in seven years. At the same time, real estate prices have also risen rapidly.From 1988 to 1992, land prices rose at an average rate of 10% to 30% per year; from 1992 to July 1997, it reached 40% per year, and land prices in some places actually increased by 14 times in one year. The real estate industry inevitably accumulates a large amount of bubbles driven by overexpanding bank credit. Due to the lack of good regulation, the supply of the real estate market has greatly exceeded demand, forming a huge bubble. In 1996, the vacancy rate of houses in Thailand continued to rise, with office buildings vacancy rate as high as 50%.
bubble burst. After entered 1996, the international market demand for Thailand's export products was sluggish and the trade deficit intensified. However, the Thai government made a mistake in judging the international situation, coupled with factors such as weak financial supervision and unstable financial system, the International Investment Fund began to withdraw from Thailand, which put huge pressure on Thailand's exchange rate. The huge outflow pressure forced the Bank of Thailand to eventually abandon the fixed exchange rate system and implement the "floating exchange rate system under management", which led to a sharp decline in the foreign exchange market and the stock market, and the Thai baht depreciated by more than 1 times. Real estate prices also fell rapidly, shrinking by nearly 30% in the second half of 1997 alone, and the real estate bubble eventually collapsed.
4.3.2 Formation of Malaysian
foam. Malaysia has long implemented an outward-oriented economic policy, and foreign trade plays an important role in the economic structure. From 1990 to 1996, Malaysia's average annual export growth rate reached 18%, about 10 percentage points higher than the GDP growth rate during the same period. Malaysia hopes to enter the ranks of developed countries by 2020. To this end, the Malaysian government has adopted a policy of using high investment to drive economic development. In order to make up for the shortage of investment funds, Malaysia has implemented economic and financial liberalization policies, including the free conversion of capital projects. International capital has poured into the country in large quantities. By June 1997, Malaysia's total foreign debt had reached US$45.2 billion, of which short-term foreign debt accounted for about 30%. Similar to Thailand, a large amount of foreign debt was not invested in the real economy, but turned to the real estate industry and the stock market, thus causing the bubble to form rapidly.
With the expansion of investment and credit, the entire real estate market has experienced abnormal prosperity. Due to the defects of Malaysia's financial regulatory system, the central bank failed to effectively regulate the flow of capital, and a large amount of capital entered the highly speculative real estate industry and stock markets, resulting in a rapid rise in real estate prices. Taking the capital Kuala Lumpur as an example, in 1995, before the financial crisis, residential rents and residential prices rose by 55% and 66% respectively. The increase in prices has led to the normal vacancy rate of office buildings from the average level of 5% to 6% from 1990 to 1995 to 25% in 1998.
bubble burst. After the outbreak of the financial crisis, the economic bubble collapsed rapidly. The Malaysian currency exchange rate plummeted from 1 US dollar against 2.5247 ringgit in July 1997 to 4.88 ringgit in January 1998, and the currency depreciated by nearly 50%. The stock market collapsed sharply, and financial and real estate stocks even fell 70% to 90%. The real estate market bubble also burst. In the second half of 1997, the average transaction volume of Malaysian real estate fell by 37%, and various housing price indexes began to fall sharply.
4.3.3 Formation of
bubbles in Hong Kong, China. In the late 70s, Hong Kong, China, gradually transformed into an economy dominated by finance, trade and services. The real estate industry in Hong Kong in China has developed rapidly in this industrial adjustment. According to data from 1998, the real estate industry in Hong Kong in China contributed as much as 20% to GDP, real estate investment accounts for nearly 50% of fixed asset investment, and 35% of government revenue also comes from the real estate industry. Entering the 1990s, the economy of Hong Kong in China continued to develop, the demand for the real estate market continued to increase, and real estate prices rose very rapidly.
Since 1991, Hong Kong, China has implemented a "sustaining" land supply policy and stimulated it with low interest rates, and housing prices have soared. The surge in real estate prices has caused the market speculation to heat up sharply. Many Hong Kong residents in China have achieved rapid growth in wealth due to buying and selling real estate, and even companies have borrowed loans from banks to turn to land. The Hong Kong real estate market in China is full of serious speculative atmosphere. In the fourth quarter of 1996, the Hong Kong banking industry relaxed the review standards for housing mortgage loans, which directly prompted a large number of property speculation forces to enter the real estate market, causing the already very high property market prices to soar again.The ratio of real estate price growth rate to GDP growth rate averaged 2.4 between 1986 and 1996, while in August 1997, the indicator reached 3.6-5.0 at the peak of the property market in Hong Kong, China. The Hong Kong real estate bubble in China can be seen.
bubble burst. The Asian financial crisis broke out in 1997, and the Hong Kong dollar exchange rate and Hong Kong stocks fell under pressure, causing problems such as rising interest rates in Hong Kong, China, shrinking bank credit, and increasing unemployment. Due to the rapid rise in housing prices in the early stage, the proportion of the real estate industry in the economic structure was seriously unbalanced, and the market's market demand for real estate was mostly speculative. After the crisis broke out, the increase in borrowing costs, the weakening of residents' payment ability and pessimistic expectations of the market caused a "piercing" decline in the property market. From 1997 to 1998, housing prices in Hong Kong, China fell sharply by 50%-60%, transactions shrank significantly, and the vacancy rate of houses rose.
The plummeting housing prices have led to a large shrinkage of social wealth. It is calculated that from 1997 to 2002, the total market value of Hong Kong's real estate and stock market in Hong Kong lost about HK$8 trillion, which is more than the GDP of Hong Kong in the same period. In this bubble, the average loss of HK$2.67 million per owner in Hong Kong in China, and more than 100,000 people turned from millions of "rich people" to millions of "negatives" overnight.
Due to the high dependence of government finance on real estate during the bubble period, fiscal revenue has long relied on land lease income and other real estate-related taxes. After the bubble burst, the overall fiscal revenue of the Hong Kong government decreased by 20% to 25%. In addition, the banking system has also accumulated a large number of non-performing loans, and the collateral assets of individuals and industrial and commercial enterprises have been greatly reduced.
From 1998 to 2003, the economy of Hong Kong in China has been in a quagmire of recession. In 1999, 2001, 2002 and 2003, the economic growth rates of Hong Kong in China were -1.2%, -0.7%, -0.6% and -2.2%, respectively.
5 The United States' real estate bubble from 2001 to 2007 and the subprime mortgage crisis in 2008
Under the stimulation of excess liquidity and low interest rates, it gave birth to a large real estate bubble from the United States from 2001 to 2006. In 2004, the Federal Reserve began to raise interest rates, and in 2008, the US subprime mortgage crisis broke out and quickly spread into an international financial crisis. Although after QE and zero interest rates, the global economy has not yet fully emerged from the shadow of the international financial crisis.
5.1 Formation: The Internet bubble burst, the "House has its own house" plan, low interest rates, shadow banking
The Internet bubble burst in 2001, and the US economy fell into recession. In order to promote economic growth, stimulate real estate, and promote the plan of American families to "have their own homes". However, at that time, the demand for home purchases for wealthy Americans was basically saturated. Therefore, the government turned its attention to those with middle- and low-income or non-fixed income or even no income. These people with lower credit ratings have become the "new favorites" of real estate consumption, which has led to the large issuance of subprime loans.
After 2001, the US economy fell into recession. In order to stimulate the economy, the Federal Reserve cut interest rates for 13 consecutive times. The federal funds rate dropped from 6.5% in early 2001 to 1% in June 2003, and the 30-year fixed-rate mortgage contract rate dropped from 8.52% in May 2000 to 5.45% in March 2004. Meanwhile, U.S. government legislation requires financial institutions to lend to the poor. Loose loan interest rates have stimulated the demand for home purchases among low-income groups.
In the United States, most of the financial institutions that issue subprime loans are mortgage companies. Due to the lack of sales outlets, loan companies mainly use brokers and customer agents as distribution channels. In order to charge more handling fees, they blindly develop the customer market, neglecting or even deliberately concealing the customer's borrowing risks. Fierce market competition continues to lower the credit threshold for borrowers. Many subprime loan companies have launched "zero down payment" and "zero documents" loan methods for subprime credit lenders. They do not check income or assets. The lender can buy a house without funds. They only need to declare their income without providing any proof of repayment ability. Some lending companies even fabricate false information to allow unqualified lenders to pass their loan applications. In this case, the "edge lender" who could not have borrowed money or could not have borrowed so much money was also bewitched. Long-term loose monetary and low-threshold loan policies have stimulated the demand for home purchases by low-income groups, and have also spawned large-scale speculative demand in the market.
Unlike commercial banks, mortgage loan companies generally cannot absorb public deposits, but rely on the secondary market of loans and the securitization of credit assets to solve the problem of funding sources. To this end, loan companies sell loan assets to the market in the form of housing mortgage-backed securities (RMBS), and while obtaining liquidity, they also transfer related risks to the capital market. Financial innovations in real estate mortgage loans are not only MBS, but other products such as CDO products are emerging one after another.
As of 2007, the total amount of financial products related to subprime loans reached US$8 trillion, five times that of mortgage loans. After 2001, as China, the Middle East and other economies accumulated a large amount of trade surplus and US dollar, international capital flowed into the United States to purchase US dollar assets, including subprime securities products. Excessive financial innovation has become the driving force behind the expansion of the US real estate bubble.
5.2 Crazy: Government stimulus, banks boosted, short-term investment, long-term investment,
(1) Government policies support loans to "three no" personnel
Subordinate housing loans are mainly to provide housing loans to people who have had a record of default. These borrowers are usually without jobs, no fixed income and no assets, that is, "three no" personnel. This type of people usually do not have good repayment ability, but they can still easily obtain loans, and some banks even take the initiative to issue loans to these people. The policy plan of "homeone has its own house" fines financial institutions that refuse to provide housing loans to low-income people on the charge of discrimination, usually as much as millions of dollars, putting a lot of pressure on lenders.
(2) Financial institutions continue to expand loan scale based on the continued rise in housing prices
Under the Federal Reserve's low interest rate policy, residential prices as collateral have been rising. Even if there is a default, the bank can auction the collateral (residential). As house prices have been rising, banks are not worried about losses due to borrowers’ defaults, so the threshold requirements for borrowers are getting lower and lower, and they are crazy about expanding their loan scale.
(3) "Short-term financing and long-term investment" accumulates risks
The capital market has a high liquidity and low borrowing costs in the money market, providing a suitable market environment for financial institutions to begin to use short-term funds to provide a very dangerous model of long-term asset financing. Mortgage institutions usually do not have any corporate or retail deposits and still issue large amounts of housing loans of 30 years or even longer, and the source of funds they rely on is funds with overnight or about a week in the money market, which causes a serious mismatch between bank assets and liabilities. Once the low-interest environment changes, the "borrowing short-term investment and long-term investment" business model is prone to debt squeeze, which leads to an accelerated decline in the prices of asset-backed securities.
(4) House prices surge
The US real estate market has continued to expand since 1997, especially since 2001, with a more rapid growth in GDP rising from 15.9% at the end of 2001 to 19.7% at the lowest in 2006. The proportion of residential investment in total investment reached 32% at the highest, and the annual growth rate of new home starts exceeded 6%, and at the highest in 2003, it reached 8.4%.
House prices have been rising all the way due to excessive liquidity and low interest rates. The increase in housing prices from 2000 to 2007 has greatly exceeded the long-term growth trend over the past 30 years. According to the housing price index of 10 and 20 major cities in the United States, house prices in the top 10 cities in the United States rose to a record high of 226.29 in June 2006, 2.9 times that of December 1996. Stimulated by expectations of rising housing prices and the decline in mortgage interest rates have led to a reduction in housing purchase costs, American residents have joined the ranks of mortgage purchases. From 2001 to the end of 2006, the scale of mortgage issuance increased by US$407 billion to US$2520 billion, and in 2003, it reached a maximum of US$3775 billion. Among them, the subprime loan scale issued by the top 25 largest subprime loan issuing institutions in the United States accounts for more than 90% of the total subprime loan scale.
Excess liquidity has spawned a bubble in the US housing market. The rise in housing prices far exceeds the rise in residents' income. The housing vacancy rate rose from 1.8% in mid-2005 to 2.8% in the third quarter of 2008.
5.3 Crash and impact: interest rate hike, subprime mortgage default, international financial crisis, Volker rules
In 2003, the US economy began to recover. Out of concerns about inflation, the Federal Reserve raised the federal funds rate 17 consecutive times in two years since June 2004, raising it from 1% to 5.25% in 2006. Since most subprime mortgage loans are floating-rate loans, the reset loan interest rates rise with the rise in the benchmark interest rate, and the repayment pressure on most subprime borrowers has increased significantly. The rise in benchmark interest rates gradually pierced the bubble in the US real estate market. After entering 2006, the SP Case-Shiller index, which reflects changes in housing prices in major U.S. cities, began to fall significantly. For mortgage providers, falling house prices have lowered the value of collateral, making it unable to recover principal and interest of the loan by selling collateral. For subprime borrowers, falling housing prices prevent them from obtaining new mortgage loans through home equity loans, and even if the property is sold, they cannot repay the principal and interest, so they have to default.
From 2007 to 2008, the subprime mortgage crisis broke out in full swing and spread rapidly into an international financial crisis. Its severity is said to be "once a hundred years." This crisis not only has a wide range of impact, but its severity is also much higher than that of previous financial crises in the past few decades. The banking industry has been affected significantly in the past financial crises, but this crisis has affected almost all financial institutions including banks, hedge funds, insurance companies, pension funds, and government credit-backed financial enterprises.
The biggest impact of subprime mortgage default is the housing mortgage financial institutions that provide subprime mortgages. In February 2007, HSBC Holdings (HSBC) added $1.8 billion in bad debt provisions to its subprime mortgage business of its U.S. affiliates. In April 2007, New Century Financial Corporation, the second largest subprime mortgage company in the United States, filed for bankruptcy protection, and then more than 30 subprime mortgage companies closed down. The next impact was on institutional investors such as hedge funds and investment banks that purchased subprime mortgage RMBS and CDOs. The world's famous investment bank Lehman Brothers went bankrupt, Merrill Lynch was acquired, and large European banks such as commercial bank giant RBS were nationalized one after another. Other financial institutions such as insurance and funds have also been significantly affected as participants in subprime loans, such as the serious imbalance between AIG assets and liabilities, which will eventually be taken over by the US government. The reason why the US subprime mortgage crisis escalated into an international financial crisis is that US housing loan assets were derived from investment banks into other financial products and resold to global investors. This financial innovation closely links the US real estate market and the global financial market like never before.
After the subprime mortgage crisis, many large financial companies went bankrupt. To this end, the Federal Reserve has made a series of measures to rescue the market. Before 2007, the structure of the Federal Reserve's balance sheet was relatively stable, with a total scale in a stable state of rising steadily, and the Treasury bonds held accounted for more than 80% of the total Fed's assets. After the 2007 financial crisis, the Federal Reserve added new projects such as securities containing toxic assets (mainly housing and commercial real estate mortgage assets) as collateral on the assets of the balance sheet. In order to save the financial industry, the Bush administration and the Obama administration proposed the "Problem Asset Relief Program (TARP)" and the "Financial Assistance Program (FSP)" respectively, with a total scale of $2.3 trillion. The Federal Reserve has significantly increased its holdings of federal institutional bonds and mortgage securities. As of the end of 2016, the balance of collateralized securities (MBS) in the Federal Reserve's balance sheet reached $1.74 trillion, accounting for 39% of total assets. How to deal with complex toxic assets on its balance sheet without affecting the normal operation of financial markets is a difficult problem for the Federal Reserve in the future.
Subprime mortgage crisis exposed various problems in the US regulatory system. In 2009, the Obama administration proposed a plan to reform the financial regulatory system, aiming to make "our financial system safer as a result", which is called the "Volcker Rule". The essence of Volker's rule is to prohibit banks from conducting speculative transactions that are not related to customer financial services. One of the core is to prohibit banks from engaging in self-operated investment business.When the financial crisis occurred, the risks of bank proprietary transactions were concentrated on huge amounts of financial derivatives such as MBS, CDO, CDS and other products. These derivatives all have dozens or even nearly a hundred times leverage, posing great risks to the market. The ban on self-operated transactions is actually the government's forced large-scale "deleveraging" of the market.
It has been nearly 9 years since the subprime mortgage crisis in 2008. The US economy has only begun to emerge from the recession after three rounds of QE and zero interest rates. The European and Japanese economy is still at a low point even if it launches QQE and negative interest rates. China's economy has since bid farewell to the era of high growth. Latin America, Australia and other resource countries have fallen sharply and fallen into a long-term downturn. To date, the impact of the subprime mortgage crisis on the world has not been completely eliminated.
6 The revelation of previous real estate bubbles
Looking at the five major real estate bubble events in global history, we can draw the following nine revelations:
1) Real estate is the mother of the cycle. From the perspective of driving economic growth, the real estate industry plays a crucial role in the macro economy, both in developing countries and developed countries. Every economic prosperity is mostly related to consumer investment driven by real estate, while every economic depression is mostly related to the bursting of the real estate bubble, such as Japan around 1991, Southeast Asia around 1998, and the United States around 2008. From the perspective of wealth effect, in typical countries, the market value of real estate is generally 2-3 times the annual GDP, and is 50% of the total variable price wealth, which is far from comparable to other asset markets such as stock markets, bond markets, commodity markets, and collectibles markets. Take Japan as an example. In 1990, the market value of all real estate in Japan was five times that of the United States and twice the total market value of the global stock market. The land price in Tokyo alone was equivalent to the land price across the United States. Take China as an example. In 2018, real estate investment accounted for one-quarter of the total fixed asset investment in the whole society, and real estate-related investment accounted for nearly half. The national real estate market value was about 321 trillion yuan, which was 3.6 times the GDP that year, accounting for 71% of the market value of stocks, bonds and housing.
2) Ten crises and nine real estate. Since real estate is the mother of the cycle, it has a huge impact on economic growth and wealth effects, and is a typical high-leverage sector, the major economic crises in global history are mostly related to real estate. For example, the Great Depression in 1929 was related to the bursting of the real estate bubble and the subsequent banking crisis. The 20 years of loss after the collapse of Japan's real estate in 1991. After the bursting of the Southeast Asian real estate bubble in 1998, most economies fell into the middle-income trap. The US subprime mortgage crisis in 2008 has not yet emerged from the shadow of the world. In contrast, the abnormal fluctuations in the US stock market in 1987 and the abnormal fluctuations in China in 2015 have a much smaller impact on the economy.
3) The formation of previous real estate bubbles was supported by fundamentals such as economic growth, urbanization, and residents' income at the beginning. The demand for commercial housing includes housing demand and speculative demand. Housing demand is mainly related to urbanization, residents' income, population structure, etc. It reflects the commodity attributes of commercial housing, and speculative demand is mainly related to monetary injecting and low interest rates. It reflects the financial attributes of commercial housing. Most real estate bubbles were supported by fundamentals at the beginning. For example, the Florida real estate bubble in the United States from 1923 to 1925 was related to the prosperity of the US economy and the prosperity of tourism. The Japanese real estate bubble from 1986 to 1991 was related to the successful transformation and long-term prosperity of the Japanese economy. The Southeast Asian real estate bubble from 1991 to 1996 was related to the "Asian economic miracle" and rapid urbanization.
4) Although the times and countries are different, the crazy real estate bubbles have been stimulated by excessive liquidity and low interest rates. Since real estate is a typical high-leverage sector (regardless of the mortgage loans on the demand side or the development loans on the supply side of real estate companies), the housing market is extremely sensitive to liquidity and interest rates. Over-liquidity and low interest rates will greatly increase the speculative demand and financial attributes of real estate, and be separated from the fundamentals of residents' income and urbanization. After Japan signed the "Platform Agreement" in 1985, in order to avoid the negative impact of the appreciation of the yen on the domestic economy, it continued to cut interest rates significantly. From 1991 to 1996, Southeast Asian economies were inflows sharply under financial liberalization, and after the bursting of the US Internet bubble in 2000, it continued to cut interest rates significantly in order to stimulate the economy.China has seen three waves of real estate cycles rebound since 2008. In addition to fundamental support such as medium-to-high economic growth and rapid urbanization, each time it is related to excessive currency issuance and low interest rates. This wave was particularly obvious from 2014 to 2016.
5) Government support, financial liberalization, lack of financial supervision, and out of control of bank lending have played a role in fueling and adding fuel to the fire. The government often stimulates real estate for the purpose of economic development. Around 1923, the Florida government launched a large-scale infrastructure to attract tourists and investors. After 1985, the Japanese government took the initiative to cut interest rates to stimulate domestic demand. After Hainan established the Special Administrative Region in 1992, it encouraged development. In 2001, the Bush administration implemented the "Households with their houses" plan. Financial liberalization and lack of financial regulation have caused too much currency to flow into real estate. Around 1986, Japan accelerated financial liberalization and liberalized corporate bond financing. From 1991 to 1996, Southeast Asian countries accelerated the opening of capital accounts and led to a large amount of international capital inflows. From 2001 to 2007, the rise of shadow banking in the United States led to excessive financial innovation. Due to the high leverage nature of real estate, bank lending has been out of control, and the rise in housing prices will further boost banks to increase lending, and even actively persuade customers to mortgage loans, zero down payments, and leverage. The banking industry has been deeply involved in all real estate bubbles, resulting in the real estate bubble crisis that is both a financial crisis and an economic crisis.
6) Although the times and countries are different, the collapse of the real estate bubble has been related to currency tightening and interest rate hikes. risks are rising, and the bigger the bubble, the greater the possibility of bursting and the deeper the adjustment. The Bank of Japan raised interest rates five times in a row since 1989, restricting real estate loans and cracking down on land speculation. In 1991, Japan's real estate bubble burst. On June 23, 1993, Zhu Rongji announced the termination of the listing of real estate companies and the comprehensive control of bank funds into the real estate industry. On the 24th, the State Council issued the "Opinions on the Current Economic Situation and Strengthening Macroeconomic Control", and the Hainan real estate bubble burst. In 1997, Southeast Asian economies collapsed, international capital withdraws rapidly, and the real estate bubble burst. The Federal Reserve raised the federal funds rate 17 times in two years since June 2004. Subprime mortgage defaults increased significantly in 2007, and the subprime mortgage crisis broke out in 2008.
7) If there is a lack of fundamental support for population, urbanization and other fundamentals, the adjustment and recovery time will be longer after the real estate bubble burst. There were two rounds of bubbles in Japan's real estate in 1974 and 1991. The first adjustment around 1974 was small and the recovery was strong. The reason was that the medium-speed economic growth, urbanization space, and the number of people who were suitable for home purchases at a high level provided fundamental support; however, the second adjustment around 1991 was large and lasted for a long time, because the long-term economic slow growth, the urbanization process was coming to an end, and the population aging was aging. After the bursting of the US real estate bubble in 2008, it did not fall into the lost 20 years like Japan, but instead set a new high in housing prices, mainly because of the US's open immigration policies, a healthy population age structure, a flexible and dynamic market economy and innovative mechanisms.
8) Every time the real estate bubble collapses, the impact is profound and far-reaching. 1926-1929 The Great Depression caused by the bursting of the real estate bubble and the banking crisis eventually escalated from a financial crisis, an economic crisis, a social crisis, and a political crisis to a military crisis, causing a devastating blow to human society. After the collapse of Japan's real estate in 1991, it was a 20-year loss, with economic downturn, poor highs, shrinking wealth of residents and long-term deflation. After the Hainan real estate bubble burst in 1993, it had to deal with unfinished buildings and non-performing loans for a long time, and the local economy was sluggish for a long time. It has been 10 years since the subprime mortgage crisis in 2008. The US economy has only begun to emerge from the recession after three rounds of QE and zero interest rates. To this day, the impact of the subprime mortgage crisis on the world has not been completely eliminated.
9) Real estate is the hardest bubble. It should land softly, prevent hard landings, exchange time for space, be vigilant and take measures to control the real estate bubble, and accelerate the construction of a long-term mechanism with people-land linkage and financial stability as the core. "Real estate looks at population in the long term, land in the medium term, and finance in the short term."China's economy and residential investment have bid farewell to the era of high growth. Real estate policies should adapt to the characteristics of the new development stage of "slowing total volume and structural differentiation" and avoid the risk of bubbles that are hoped to stimulate real estate to return to high growth. In the long run, although the proportion of the main home buyers aged 20-50 in China peaked in 2013, taking into account the urbanization process, the growth of residents' income, the miniaturization of the average household size of households, housing renewal, etc., China's real estate market still has a lot of room for development in the future. In the medium term, regional differentiation is obvious, population continues to migrate to metropolitan areas, and the problems of separation of people and land and mismatch between supply and demand are still serious. The real estate bubble has a very obvious negative effect: the sharp rise in housing prices deteriorates income distribution, increases the social speculative atmosphere and inhibits the enthusiasm of enterprises to innovate; real estate has non-productive attributes, and excessive credit investment in real estate will squeeze out investment in the real economy; excessive housing prices increase social production and living costs, which can easily lead to industrial hollowing out. At present, measures should be taken to avoid the bubble trend of rising housing prices from fundamentals, and at the same time prevent excessive tightening and puncture of bubbles. The country is time to change space and promote market-oriented secondary housing reform. You can consider: reforming the "people-land linkage" with the increase in permanent population as the core, optimizing land supply; steadily promoting real estate tax reform and promoting land fiscal transformation; implementing long-term and stable housing credit and financial policies to stabilize market expectations; enriching supply entities, optimizing housing supply structure, and accelerating the filling of shortcomings in rental housing. believes that through measures combining long-term and short-term and secondary housing reform, China's real estate market is expected to achieve a soft landing and long-term healthy development.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-