Real Estate Industry and Competitors

The real estate market is vibrant, healthy, and vigorously competitive. Technology innovation in the real estate industry is robust, and the notion that real estate isn’t highly competitive and listing data not readily available is unsubstantiated. To the contrary, a wealth of listing data is available to consumers and technology companies from a multitude of sources, and REALTORS® provide their clients and consumers with more real estate information today than has ever been available.

The Federal Trade Commission and the Department of Justice jointly hosted a June 5, 2018 workshop, “What’s New in Residential Real Estate Brokerage Competition,” in which NAR general council Katie Johnson was among a distinguished group of panelists. NAR asserts that innovation, competitive forces, and consumer choice have never been stronger.

The threat of new market entrants

The real estate market is a relatively unique market, and its uniqueness lies in the high-input, high-yield, and high-risk. Since the introduction of reform and opening up, real estate has been separated from the construction industry and has developed rapidly. There are 37123 real estate development enterprises as of 2004; the number is quite big in contrast to that of other country.

However, the development scale of many enterprises is small, and their strength is not strong enough to be
said internationally competitive enterprises.Quantitatively, the annual average development volume is very
small, and the market share of the largest domestic enterprises is only 0.5%. The real estate market is large
potential for new entrants for the following reasons:
The real estate industry as a pillar industry is of great importance to the national economy, which has
attracted many enterprises to be involved in it. Bros Liu, as the Chinese mainland richest man listed in U.S.
financial magazine “Forbes” in October 2001, set up their company based on animal feed, food, bio-based
products in 1982, invested 3.0 billion into the real estate industry in 2001.
In recent years, the good operating performance of the real estate industry have aroused widespread
concern from other industries. In 2001 Mainland China 100 tycoons in regal list, 25 were engaged in the real
estate. Therefore, many enterprises regard engagement in real estate as strategic decision for rapid
development, and are stepping up into the real estate market.
As a result of the differences of regional economic environment, potential entrants in different regions
are also different. For example, Beijing will invest 150 billions RMB into Infrastructure construction for
Olympics. Before 2008 there will be completed nine million ㎡ of old urban areas, because of this, the
potential entrants to Beijing has three obvious characteristics: there are more ecdemic enterprise, more laic
enterprise, more foreign-funded enterprise.The Plan of “Great Beijing” World Town was announced, which
will prompt bigger effect of the Olympics and accession to the WTO , make Beijing become a hot spot in
North China, and attract more people into this market.
There are only a few foreign enterprises participating in China’s real estate market and less
internationally renowned enterprises into the domestic market. As China’s accession to the WTO, these
enterprises will not ignore Chinese market and will be directly involved in it. For example, in the early
December 2001, at the business meetings held in Singapore, China Shenyang delegation signed nine
agreements with Singapore; there are five real estate projects.
The threat of entrance from other area exists in many provinces and city of China. Beijing YinXin
GuangHua real estate company that has developed ” sunshine 100″ Successfully, signed a contract of 1,500
acres land in Jinan; Newtown developers Panshiyi has scored 1,000 acres in HaiNan for the development and
construction of Hainan Boao; Hong Kong Hutchison Whampoa signed with the Beijing Chaoyang District
government an investment of 10 billion to develop 300 hectares land of Dongba. Therefore, the threat of
potential entrants is very huge, and real estate enterprises must compete for limited market to meet the
challenge of new entrants.

The threat of substitute products

China’s real estate market is still in the formative age, and the target customers are constantly changing. This
is because consumption patterns gradually changed from the public consumption before the reform and
opening up, to personal consumption after it. However, personal consumers become increasingly critical, and
the consumers’ demands of commercial, business and others become increasingly high.
(1) The transformation of Consumer attitudes and the high-grade price of the real estate provide an
opportunity for the substitute. For example, in the residential market, although the current houses are good
enough, will be replaced by newer better housing if not quickly be sold.
People’s demands always changes with their conception of property investment. According to real estate
market transactions statistics in a coastal city during 1998-2000 made by Tianjin University, the size and price
of the best sales are as follows : 1998, 75 ㎡, 1.8 million ¥; 1999, 85 ㎡, 2 million ¥; 2000, 100㎡, 2.5
million. The market clearly indicates a gradually increasing trend in the construction area. If the developers
can not fully realize this, there will emerge a large backlog of small size housing.
But this is not static, it is necessary to know that “Home Ownership Scheme” doesn’t mean “Home
Ownership property”. With the government policy’s guidance and consumption’s maturation, eventually the
consumption stairs structure will come into being in the real estate market. The products should be composed
of low-cost rental houses, ordinary rental houses, second-hand houses and commercial houses. Purchasers
should be formed jointly by consumers and investors in accordance with a certain proportion, and the people.

The bargaining power of suppliers

Professor Michael Porter dissertated in his book of “competitive advantages” that “suppliers might put
pressure on enterprises in some industries by use of the threat that increases the price or reduce the quality of
the products or services”. The supplies of the real estate industry are lands, building materials and equipments.
At present, the suppliers of general building materials and equipments have weaker bargaining power, and
those of the special materials and equipments have some bargaining power, but the land provider has high
bargaining power.
The land belongs to nation, the developers purchase its tenure, and they are subject to the effects of national
and local government’s land policy, and so have been restricted in land acquisition. The cost of land
acquisition is an important part of real estate total cost, and the land supply is limited, which makes the land
suppliers have high supply-side bargaining power.
Although the government has introduced a number of policies to stabilize the real estate prices, but whether
the prices of ordinary residence or high-grade is still rising, which follows that the second-hand house’s price
is also increasing dramatically. June 2006 new house’s sales prices still rise largely in Beijing, compared with
the same month in 2005, representing an increase of 11.2%. Therefore, real estate development enterprises are
influenced deeply by the government land policies.

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