Historical article note: This article was originally published on 2018-02-20. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
"Happy New Year, good health, and good luck in getting rich." Dear readers, Happy Chinese New Year. Hongyu is here to wish you all a happy New Year. I remember that I started to use "Gong Xi Fa Cai" to send New Year greetings to my family and friends in 1999. Before that, according to the custom of us northerners, the Spring Festival greetings were "Happy New Year". Starting from the age of 29, this change in New Year greeting habits made me realize that wishing relatives and friends to make a fortune and make a fortune should be one of the best wishes. When Premier Zhu Rongji implemented the housing monetization reform in 1998, houses finally became commodities, thus completing the transformation of China's commercial society. After 20 years of development, terms such as "housing consumption", "real estate", "mortgage loans", and even "purchase restrictions" and "loan restrictions" have become widely popular. The most important quiet change is that housing has become a non-standard investment product among some people. Nowadays, the assets of Chinese families can no longer be identified by the amount of RMB deposits, because real estate allocation at home and abroad already accounts for a considerable proportion of wealth.
In South Korea, our neighbor that had real estate privatization earlier than China, Mr. Sun Luogui described to us a "real estate class society", which opened our eyes: a nation that likes real estate. Under the rule of law where personal property is sacred and inviolable, the real estate owned marks the different classes of each person, instead of dividing social classes by occupation. A university professor only has one property, and a primary school physical education teacher owns three similar investment properties in the same city. The latter belongs to the first housing class in South Korea, and the former belongs to the second housing class. According to the author's description, it is difficult for these two classes to move between each other, and they have been basically solidified in South Korea. In the society we live in, whether in China or Canada, will there be a situation where real estate is used to judge heroes? If it happens, what impact will it have on our lives? With these questions in mind, let’s share this book together.
The author, Mr. Sun Luogui, once worked for a labor union and a parliamentarian's office. Judging from his work experience, the perspective and stance of "Real Estate Class Society" are on the side of the proletariat. We can ignore his views and emotions and only look at the data mentioned in the book. The original Korean book was published in 2008, and the Chinese translation was published in December 2012. The data in the book is from 10 years ago, but it is of great reference value. South Korean real estate experienced four periods of growth after World War II. From 1965 to 1968, house prices rose by 38.2%; from 1975 to 1979, by 33.4%; from 1988 to 1990, by 16.3%; from 2002 to 2008, by 22.8%. After four rounds of increases, the land value in South Korea in 2008 was 5.7 times that of Canada. That is, if you sell South Korea, you can buy back 6 Canadas with an area 100 times that of South Korea. The author divides Koreans into six classes based on real estate: the first class, each household has more than 2 properties, the number of households is 1.05 million, and they own 4.77 million properties, with an average of 5 properties per household, accounting for 6.6% of the total number of households; the second class, each household has one house, 7.69 million households, accounting for 48.5%; the third level, although they own real estate, they rent out their own properties and rent smaller houses due to too heavy burdens (this situation is very common in Hong Kong, China, where young people start paying for housing early, but still live with other people) Shared renting elsewhere), 670,000 households, accounting for 4.2%; Level 4, able to pay rent for one year at a time, 950,000 households, accounting for 6.2%. For this group of people, it is difficult to buy a house if the house price drops by half, but it is possible to buy a house if the house price drops by 66%; Level 5: Pay monthly rent and may be asked by the landlord to move out at any time. There are 4.81 million households, accounting for 30.3%. They cannot afford to buy a house and basically live in renting. Level 6: Live in basements or worse living conditions, 680,000 households, accounting for 4.3%.
Canada’s homeownership rate is 67.8%, while South Korea’s is only 58.6%, a difference of almost 10%. Judging from the above data, real estate concentration is too concentrated in South Korea. The rise in South Korean housing prices has reached four levels through four monetary easing policies. Since the Syngman Rhee government established the constitutional system of private land rights and inviolability of private property through the National Security Law after World War II, housing prices rose as expected along with the easing of monetary policy. When monetary policy tightened, landlords would not sell properties. Therefore, housing prices only increased, not fell, and gradually reached a level that was unaffordable for ordinary working-class people. On the other hand, Canadian real estate has a similar performance. The home ownership rate is almost 70%. 3 out of 10 people rent a house and 7 live in their own house. When monetary policy tightens, as long as the homeowners do not sell their houses, it is difficult for house prices to fall significantly. On the contrary, during the period of monetary tightening, mortgage loans became more difficult. Due to limited loan capacity, more people bought low-priced properties, such as apartments and condos. This pushed up the prices of low-end properties and blocked the room for the decline of high-end properties.
Let’s compare Greater Seoul and Greater Toronto. First of all, the rent in Greater Seoul is higher than that in Greater Toronto. In 2007, 11 years ago, the monthly rent for a three-bedroom apartment in Seoul was US$3,510. It is still not this high in Toronto. Some good people calculated the bubble ranking of the world's major cities and ranked Toronto first. The bubble index is that housing prices are higher than rents. I think the reason is not that housing prices in Toronto are high, but that rents are too low. Secondly, the land price in the Greater Seoul area is 31.6% of the national land price, but the area is only 5% of the national area; the real estate market value in the Greater Seoul area is 40% of the national value; the market value of the apartment market in the Greater Seoul area is 76% of the total market value of apartments in the country. Although there is no similar data for Greater Toronto, the trend and pattern of population concentration in mega-urban areas should be the same. Third, the home ownership rates in both metropolitan areas are lower than the national averages. The home ownership rate of residents in Greater Seoul is 52%, and the home ownership rate in Greater Toronto is 52.8%. This shows that there are more renters in metropolitan areas, and for real estate investors, metropolitan areas are suitable for investment. Fourth, 83% of the household wealth of residents in the greater Seoul area is composed of real estate, while only 59.3% is in Toronto; fifth, 27.4% of the household income of people living in the greater Seoul comes from rent income, while there is no such data in the Greater Toronto Area. In the real estate market, we look at trends in the long term, land supply in the medium term, and monetary policy in the short term. For megacities, the continuous gathering of population is a trend. As long as there is money and credit, cycles are inevitable. However, cycles cannot change trends.
In addition to some data, the author also provides some descriptions of some non-quantified real estate class social phenomena, such as the relationship between real estate prices and strikes; the impact of having a house on the college entrance examination; the impact of the amount of real estate on health and lifespan, etc. In the end, we came up with this question and answer: "Human life depends on heaven? Human life depends on real estate." Since the commercialization of real estate in South Korea was 50 years earlier than China (1948-1998), some social phenomena derived from real estate development can also be used as a reference for Chinese and overseas Chinese whether to invest in real estate in the country where they live. From January 2000 to May 2006, Koreans' real estate investment return rate was 71%, and the stock return rate during the same period was 28%. The value of housing as an asset is becoming increasingly prominent, and the financial attributes of housing will be strengthened because of their widespread recognition. That is, the stored value of housing, its exchange function as a general equivalent, its liquidity, and its characteristics as collateral will be increasingly recognized and even amplified. Housing has an inseparable relationship with education, social status, living conditions, health, and even life span. Therefore, real estate is not an ordinary investment product. It also has a label of social status and an emotional color that is difficult to let go.
The author made several suggestions to the government in response to the increasingly serious polarization of real estate wealth, including confiscating the properties of multiple homeowners and distributing them to those without homes; suggesting that banks lower lending standards and issue mortgage loans to households with weak financial capabilities. The reason South Korea became one of the Four Asian Tigers is because the law protects the sanctity of private property, encourages competition, and improves production efficiency. This suggestion of reversing the course of history is a joke. Borrowing to families with weak financial capabilities is the most fundamental cause of the subprime mortgage crisis in the United States. The author's suggestion is completely undesirable. South Korea accepted the International Monetary Fund's rescue after the financial crisis in 1997. According to the rescue agreement, the South Korean government must withdraw from the "state-directed" economic model. For example, the government previously stipulated that large companies could not fire employees in batches in order to maintain social stability. It was not until February 1998 that it was legal to fire employees in batches. South Korea has since entered a truly free economic period. Neoliberalism has liberated the minds of Koreans and maximized individual autonomy and free choice, thereby accelerating the rapid circulation of goods and capital. Housing is also one of the commodities that is held competitively. The consumption theory that advocates individual consumption and individual desires gradually dispels the work theory. Human body parts have also become consumer goods in South Korea. If someone disagrees with them, they will have their noses and eyes repaired. The social status of engineers and plastic surgery nurses reversed after the transition from a productive society to a consumer society. Many people cannot understand this change, including the author of this book. Unfortunately, when we talk about South Korea today, the first thing that pops into our minds is “the world’s number one plastic surgery country” instead of “Samsung” or “LG”.
The changes of the times have brought us opportunities and challenges, but also helplessness and dissatisfaction. Is it really necessary to judge heroes based on real estate in the future? Who knows. As an economic unit with the family as the main body, no matter how society's values change, it is necessary to improve financial intelligence and work hard to increase one's family wealth. It is very scary to be reduced to a vulnerable group due to changes in social values and to be solidified by social classes. Compared with South Korea, where the proportion of people who own multiple properties is 6.6%, the proportion of people who own multiple properties in the Golden Horseshoe region is 120,000 to 7.14 million = 1.67% of the total population, and the proportion of people who invest in houses as assets is less than 2%. Salary workers are not yet very aware of investing in real estate, and the real estate class has not yet emerged in Canada. Previous public account articles introduced the PHRESE investment method: Purchase, hold, refinance, continue to hold, continue to remortgage, and finally sell, which is a strategy proposed for real estate investment by salarymen. The importance of real estate, especially investment properties, to family finances cannot be underestimated.