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