Analysis On The Relationship Between Real Estate Market And Lending

Real estate is a capital-intensive industry, heavily dependant on the lending of financial institutions in each of the phases, from development to consumption. In the economic system of the real estate industry, interest rate as a variable is set by an outside factor, that is, the monetary policy of the central bank.Lending rate is a major policy tool employed by the central government to exercise macro-economic adjustment and control over the real estate industry. Lending rate affects the industry in two aspects. On the one hand, it directly influences investment decision of the developers, impacting the costs and profits. On the other hand, lending rate directly impacts the confidence level, payment ability on the part of the consumers.In theory, the upward adjustment of the lending rate is conducive to controlling the overheating of the economy caused by the irrational investment and speculation in real estate, providing a guidance to the direction of capital and to setting priority on the use of funds. The lending rate is viewed as one of the most effective tools to exert control over the supply and demand situation in the real estate industry. But in practice, upward adjustment of the lending rate may result in a severe blow to the industry and the economy in general. Against the backdrop of the yuan appreciation against major currencies in the world, raising the lending rate by the central bank has limited effect on the control of rapid appreciation of housing prices.Comparative studies on the relationship between interest rate and housing prices in such countries as the United States, Great Britain, France, Japan and Hong Kong show a negative correlation. However, when interest rate reaches a certain level,either high or low, the movement of interest rate, upwards or downwards, have less than obvious impact on housing prices. All in all,interest rate adjustment is an effective tool to influence the real estate industry although the effectiveness varies in different countries given their perspective macro economic conditions.Based on the above analysis, this paper has reached the following conclusion: since the real estate industry is by no means a mature industry in China and given the complicated nature of rapid appreciation housing prices, it is far from sufficient to rely only on rate adjustments by the central bank. For the industry to maintain sustainable growth and for the central government to contain the overzealous appreciation of the housing prices, it is far more advisable for the central government through its various agencies, from the perspective of basic supple and demand of the housing market, to introduce policies on land, tax, finances, currencies, coupled with various administrative and fiscal measures to ensure an equilibrium in the supply and demand and structure of the housing market.