Is it better to buy a house or to trade stocks?

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This post was last edited by gushen321 on 2016-3-1 at 15:07. Housing prices in first- and second-tier cities have risen sharply; in Shanghai, some property managers are hurriedly calling customers to congratulate them on their foresight in buying homes in advance and thus saving costs. 　　According to data released by the **Bureau of Statistics on February 26, in January this year, among the 70 large and medium-sized cities, Shenzhen had the highest increase in housing prices. It has led the nation in terms of price increases for 14 consecutive months, with prices rising by 52.7% compared to the same period last year. Shanghai and Beijing followed closely behind with increases of 21.4% and 11.3% respectively. 　　Housing prices in second-tier cities such as Nanjing and Hefei are rising rapidly. In January, the price of newly built commercial residential properties in Nanjing rose by 2.5% on a month-on-month basis, a figure that exceeded that of Beijing; it was only behind Shenzhen and Shanghai. The year-on-year increase was 10.8%, ranking Nanjing fourth in the country. As interest rates continue to fall, homebuyers are essentially purchasing a safe that can be mortgaged at any time to obtain cash. 　　A long-standing and profound question arises in the minds of investors: is this a giant bubble? ； If it is to break, when will it be? 　　Jiang Chao of Haitong Securities (600837) wrote that during Japan’s real estate bubble, the total value of its real estate assets was enough to buy the United States if converted into cash. Currently, the permanent population in Beijing, Shanghai, and Shenzhen totals around 60 million. Assuming a family of three per household and one apartment per family, there would be approximately 20 million apartments in total. If each apartment has an average area of 100 square meters, and considering the current average price of around 50,000 yuan per square meter, the total market value would be approximately 100 trillion yuan. 　　As of the third quarter of 2015, the Federal Reserve estimated that the total wealth of the U.S. household sector was 100 trillion dollars, which is roughly equivalent to 650 trillion yuan. Of this amount, the market value of physical assets, including real estate, was 30 trillion dollars, corresponding to about 200 trillion yuan. Simply put, it seems that selling the homes in Beijing, Shanghai, and Shenzhen would be enough to buy half of the United States, and it’s likely that buying the entire country of Japan wouldn’t pose too much of a problem either. 　　The rapid rise in housing prices in first-tier cities and key areas is a sign of investor panic. 　　According to the **Statistics Bureau’s data for January, housing prices in first-tier cities rose sharply, while those in core second-tier cities also increased significantly. In third-tier cities, prices continued to show a slight downward trend. The average monthly change in prices of newly built residential properties shifted from a decrease of 0.1% to stability, whereas the average monthly change in prices of used residential properties changed from stability to a decrease of 0.1%. Housing prices in the vast majority of third-tier cities dropped year-on-year. 　　The stock market is currently in a period of volatility, with the risk-free yields indicated by government bonds and bank financial products falling rapidly. The boom in innovative investments has come to an end; only real estate in these cities seems capable of withstanding an uncertain future. If the average housing price in Beijing drops by half, it means that the capital market will no longer have any assets available for investment. 　　The permanent population does not fully reflect the demographic situation in first-tier cities, where the influx of population is the fastest. If we include those who have lived there for more than half a year but are not registered, this can be seen from the rising housing prices in Beijing’s satellite cities as well as the increasing proportion of children from outside the region attending primary and secondary schools there. If there were no purchase restrictions, more people would buy commercial housing in first-tier cities. But big cities can’t accommodate them. 　　Those that benefit from the spillover effects of first-tier cities are satellite cities and core second-tier cities, which serve as a safety net after the first-tier cities. Experts from the Central China Real Estate Research Center say that despite the policy of \"limited supply\" repeatedly emphasized by the Ministry of Land and Resources, and since the land supply plan for the new year has not yet been released, developers’ interest in high-quality plots remains strong; in some cases, plots were sold in January at a premium of over 100%. It is expected that the focus of the real estate market this year will shift to second-tier cities. 　　With negative interest rates, the cost of purchasing property has decreased, and the financial nature of real estate has become more prominent. In 2015, national mortgage loans increased by 2.66 trillion yuan, accounting for 70% of the total mortgage loans issued since the second quarter of 2014, and nearly 20% of the total amount of mortgage loans over the past 20 years. Starting in 2015, the real estate market became increasingly booming, which was an inevitable consequence of the relaxation of mortgage regulations. 　　Real estate has become the main means of leveraging, and real estate in core cities remains the most popular collateral at present. To give an example: Suppose I own a property worth 10 million yuan. My company is facing financial difficulties, so I collude with an agent to inflate its value to 15 million yuan so that I can \"sell\" it to my relatives or close friends. A 30% down payment, with a loan of 10.5 million yuan. So I had 10.5 million yuan in my hands. And it no longer matters to me how much house prices drop. Previously, under a mortgage loan, only 50% could be borrowed, amounting to 5 million yuan, and one was also tied down by the bank. As long as cash flow is tight, this trick can be used. In the past two years, whether in the stock market or the P2P sector, the boom has been driven by various forms of leverage and cash-out strategies; if mortgage loans related to real estate and off-exchange financing are taken into account, the total amount of loans might be even higher. 　　As the return on investment decreases and mortgage costs fall, as long as housing prices rise, it becomes possible to achieve an annual risk-free return of 3%; in such cases, real estate becomes an important investment option. Although investing in stocks seems to be a more rational choice, given the benefits of economic development, the cash flows in the A-share market show that most listed companies lack the reliability that comes from physical assets such as buildings, infrastructure, and prime locations. 　　Imposing a wealth tax on real estate is used to address local financial pressures; it represents a Chinese-style alternative to a property tax. Hidden private wealth is flowing into the real estate market at an accelerated pace, and this is still better than a debt crisis resulting from simultaneous declines in the stock and real estate markets. In any case, this is an era of low interest rates where one evil must be chosen over another. 　　Homebuyers will find that in cities below the second tier, in cities where housing prices have risen too rapidly in the past, and in cities where new developments keep emerging in newly designated urban areas, it is not easy to realize a high price for their properties; all they end up with is paper wealth.