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Our Guest today is uh Professor Joseph jerko from the Wharton real estate department and we're going to talk with
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him about the latest changes in Chinese land prices Joe thank you so much for joining us today thanks for having me it
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was a while ago that we had done the the first piece about the the China China land index that you have developed with
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some of your colleagues uh can you tell us the latest update from the Warton chingua and US Chinese res residential
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land price index I I sure can and the latest data are from the third quarter of 2014 so they're hot off the presses and
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there are two interesting things about the data number one is we saw a 6.5% decline in real land prices across
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the 35 cities in our index so that's the first significant decline in some time
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it takes the price index level back about five quarters ago I think the second thing that I think is potentially
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more interesting and maybe forboding for what might happen in China is the decline in the quantity of land sales
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from local governments in the 35 markets we track to private developers who want
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to build residential complexes that number is down 44% that takes us back to levels of
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transactions volume we saw 5 years ago not five quarters ago so the very large decline in transactions volume more much
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more modest but a real decline in prices what factors do you think are driving these changes in China's land prices I
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think a couple uh number one is growth is slowing China's not in a recession
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they're I don't believe they're going to go negative but remember they've dropped
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from 10% annual price growth to 7 a half now with many people wondering are they
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going to go even lower well think about how many housing units you need if you're can to have 10% growth in your
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economy versus 7.5 in the United States we would love to have 7.5% growth but it's 25% below the 10 they were having
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so I think what's happening is developers were building and buying land for 10% growth they got seven and a half
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and you no longer need as much I think that's by far the most important factor
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I think another Factor that's out there and we'll know more about this is the of
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the year when we report our city level indexes is that different cities look to be doing very differently so inside
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China there's an awareness that ship building and steel have excess capacity
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so markets with a lot of ship building and steel production activity I suspect are going to decline more than others so
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I think there are two factors going on uh what do you expect going forward let's say in the next uh few
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quarters I wish I knew so I that's why we're doing the index so I'll know what
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I suspect is we're going to see variation at the city level um that's number one I think we'll find that some
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cities are doing just fine and other markets are not doing so fine and we have 35 in our index so we should be
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able to see a lot of variation across markets and across the countries we don't just track Beijing and Shanghai
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and guango on the coasts of the of the country um the second thing I think look for our changes in policy it's clear in
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our data if you look at our index that Chinese government policy can move the housing market so there was a similar
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decline in transactions volume in 2008 in the financial crisis and it was rapidly turned around by Chinese
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government stimulus policy we see a very large decline in transactions volume recently the question and I think what
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we ought to look for is are we going to see a change in policy I don't know um but it's happened in the
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past I kind of doubt it but I don't know but that's I think we need to look at
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what the Chinese government's going to do going forward great and just one last
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question based on what the data show what do you think uh are some of the implications for uh investors and real
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estate developers well I think real estate developers clearly inside China are becoming more cautious that's why
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you're seeing the drop in transactions volume in the US and in most other countries I've studied drops in
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transactions volume precede or lead drops in prices so I suspect they're looking at those same studies and going
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we're worried about price drops and they're worried about shorting up their
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Capital structures to make sure they're safe if there is a further downturn I
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think that's what people are are trying to figure out um is the quantity drop a
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predictor of price drops and it has been in other countries Joe thanks so much for speaking with
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knowledge at whorton my pleasure [Music]