Introduction
Recently, the policy efforts to rescue the housing market have been unprecedented, with the policy intensity further increased in October. Following the "May 17th New Policy," on September 24th, the central bank introduced financial policies to support the real estate sector. On September 26th, the central meeting first proposed "promoting the stabilization and recovery of the housing market." On October 17th, the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, and four other departments jointly held a press conference to introduce the situation regarding the promotion of the stable and healthy development of the housing market, clearly stating the "combination of measures" to promote the stabilization and recovery of the housing market.
The future policy measures to promote the stabilization and recovery of the housing market can be summarized as "four cancellations, four reductions, and two increases."
1) Four Cancellations: Including the cancellation of purchase restrictions, sale restrictions, price limits, and the standards for ordinary and non-ordinary residential housing.
2) Four Reductions: Reducing the interest rates on housing provident fund loans, reducing the down payment ratio for housing loans, reducing the interest rates on existing loans, and reducing the tax burden for "selling old and buying new" housing purchases.
Advertisement
3) Two Increases: First, the new implementation of 1 million urban village renovations and dilapidated housing renovations, and second, increasing the credit scale of "white list" projects to 4 trillion before the end of the year.
At present, the main factors constraining the stabilization and recovery of the housing market are two expectations: income and employment expectations, and housing price expectations. Real estate is the mother of cycles, and it must be taken very seriously, aiming for a soft landing. If the real estate market has a hard landing, the most severely affected will definitely be the ordinary people, with unfinished projects, a significant reduction in family assets, and even those without houses will face unemployment pressure.
From the perspective of international experience, strong, rapid, and substantial policy implementation is a key condition for resolving risks, and it is important to maintain momentum and boost confidence.
In the short term, three moves can save the real estate market:1) Establish a large housing bank with a reserve of over 5 trillion yuan, with low interest rates, long terms, large scale, and fair distribution. The reserve of existing commercial housing can be used for affordable housing, achieving multiple benefits, alleviating local financial pressure, unblocking developers' cash flow, avoiding unfinished buildings for residents, and providing affordable housing for the public.
2) Continue to lower interest rates, in conjunction with reducing related taxes, fees, and intermediary costs, to decrease the cost of purchasing a home.
3) Fully eliminate purchase restrictions and return to marketization, releasing demand for first-time homebuyers and those looking to improve their housing conditions. Guangzhou has already fully relaxed restrictions, and other first-tier cities should gradually follow suit.
In the long term, focusing on a core strategy of "urban cluster strategy, financial stability, linkage between people and land, real estate tax, and the combination of renting and buying" can accelerate the construction of a new real estate model.
We have three major judgments regarding the future trend of real estate:
The first major judgment is that if monetary, fiscal, and housing policies continue to exert force, and the economy bottoms out and recovers, driving employment and income improvement, real estate is expected to gradually stop falling and stabilize. Otherwise, it will be like the 517 new policy, with a brief rebound followed by a decline again, which will hurt market confidence.
The second major judgment is that differentiation will be the main trend in the future. Real estate depends on population in the long term, land in the medium term, and finance in the short term. First-tier and strong second-tier cities with population inflow are expected to improve, while low-tier cities with population outflow and severe inventory surplus face a long process of de-stocking.
The third major judgment is that there is no need to worry about a sharp and widespread increase in housing prices at the policy level in the short term. The stage of real estate development has changed, and the supply-demand relationship has changed. The main task of current real estate regulation is to shift from "preventing overheating" to "preventing cooling down." If there is a significant increase in some areas in the future, it can be regulated through market-oriented methods linked to people and land.
We look forward to a concerted effort this time to boost confidence and truly achieve a transition from policy bottom to sentiment bottom to market bottom to economic bottom, promoting the stabilization of the real estate market and assisting in the continuous recovery of China's economy.Five departments join forces to deliver an unprecedented impact on the real estate "combination punch"
On October 17th, the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, the Ministry of Natural Resources, the People's Bank of China, and the Financial Regulatory General Bureau held a joint press conference to introduce the situation related to promoting the stable and healthy development of the real estate market, and clarified the "combination punch" to promote the real estate market to stop falling and stabilize. The relevant policies of the Ministry of Housing and Urban-Rural Development can be summarized as "four cancellations, four reductions, and two increases".
1) Four cancellations: Cancel restrictive policies such as purchase restrictions, sales restrictions, and price limits. Fully grant city governments the autonomy to regulate, and city governments should adjust or cancel various restrictive measures on home purchases according to the city's conditions. This mainly includes canceling purchase restrictions, canceling sales restrictions, canceling price limits, and canceling the standards for ordinary and non-ordinary residential housing. The relaxation of policies in first-tier cities has a guiding significance, which is a response and implementation of the central spirit, reflecting the current necessity to stabilize the real estate market. We believe that the key in the future is whether first-tier cities can continuously increase policies until the real estate market "stops falling and stabilizes".
2) Four reductions: Including reducing down payments, interest rates, and existing housing loan interest rates. The interest rate on housing provident fund loans was reduced by 0.25 percentage points; the minimum down payment ratio for housing loans for the first and second sets was unified to 15%; the interest rate on existing loans was reduced; the tax burden on "selling old and buying new" for exchanging housing was reduced. We believe that by implementing these policies, reducing the cost of residents' home purchases, and alleviating the pressure of loan repayments, this is a good policy that supports the rigid and improved housing needs of residents.
3) Two increases: First, through means such as monetary resettlement, an additional 1 million urban village renovations and dilapidated housing renovations will be implemented. There are many safety hazards and poor living conditions in urban villages, and the public's desire for renovation is urgent. According to surveys, there are 1.7 million urban villages that need to be renovated in 35 major cities across the country. This time, the main approach is monetary resettlement, which is more conducive to the public choosing suitable houses according to their own wishes and needs, reducing the transition outside, and directly moving into new homes. At the same time, it is also conducive to the digestion of existing commercial housing.
Second, before the end of the year, the credit scale of the "white list" projects will be increased to 4 trillion yuan. The urban real estate financing coordination mechanism should strive to include all qualified real estate projects in the "white list", and meet the reasonable financing needs of the projects as much as possible. We believe that the increase in the scale of the "white list" and the improvement of the payment method are conducive to completing the delivery of buildings, effectively ensuring that all qualified projects receive reasonable financial support, which is beneficial to people's livelihood.
In terms of fiscal policy to promote the real estate industry to stop falling and stabilize, on October 11, 2024, the Ministry of Finance mentioned fiscal support policies for real estate at a press conference. On October 17, the Ministry of Finance explained the details of policies on special bonds supporting land reserves and purchasing existing houses for affordable housing.
First, special bonds + special loans are used to support local governments to repurchase existing land. Priority is given to repurchasing residential and commercial land that enterprises are unable or unwilling to continue developing and have not yet started construction, and special bond funds are matched in a timely manner. The establishment of special loans for purchasing existing land is studied as a supplement to special bonds, with the People's Bank of China providing special re-lending support.
Second, support local governments to use special bonds to purchase existing commercial housing for affordable housing. This measure is mainly decided and implemented by local governments on their own initiative and voluntarily, following the principle of rule of law and operating in a market-oriented manner. Under the condition of ensuring the balance of project financing benefits, local governments can arrange special bonds to purchase existing commercial housing for affordable housing. We analyze that supporting the use of local special bonds for storage can expand the channels of local funding sources, solve the problem of limited scale of refinancing funds for affordable housing and slow progress of storage, and promote the progress of local storage, which is both effective in digesting existing housing and preparing affordable housing, achieving multiple benefits.
2 The two major constraints on the current real estate market: income and employment expectations, housing price expectations.At present, the main factors constraining the real estate market from bottoming out and stabilizing are income expectations and housing price expectations.
1) The adverse effects brought about by changes in the external environment are increasing, with insufficient domestic effective demand, an unstable foundation for economic recovery, and unstable expectations for residents' employment and income. China's economic growth in the third quarter slightly exceeded expectations, but the foundation for recovery still needs to be stabilized. In the third quarter of our country, the actual year-on-year GDP growth was 4.6%, a decrease of 0.1 percentage points from the second quarter; the quarter-on-quarter growth was 0.9%, 0.2 percentage points higher than the second quarter. Residents have uncertainties about their future employment and income expectations.
According to the central bank's urban household survey, in the second quarter of 2024, residents' perception index of future income and income confidence index decreased by 1.3 and 1.4 percentage points respectively compared to the previous quarter. The employment perception index decreased by 1.4 percentage points compared to the first quarter, with 48.1% of residents believing that the situation is "severe, employment is difficult" or "unclear". Due to the decline in employment and income expectations, residents tend to reduce investment and consumption, increase savings, reduce debt, and thus choose to repay existing loans in advance.
2) The expectation of asset price decline has not been reversed, and the balance sheets of residents and enterprises are damaged, with weakened payment capabilities. The proportion of housing assets in our country's family assets is relatively high. In 2023, the proportion of real estate in Chinese families' total assets was about 60%, higher than the UK's 50%, Japan's 38%, the US's 28%, and Germany's 25%. The real estate market has been declining for three years, with an average decline of about 30% in the housing prices of first and second-tier cities, and the housing prices in remote suburbs and third and fourth-tier cities have almost halved. On the one hand, the decline in housing prices makes family assets face the dilemma of contraction, which restricts residents' payment capabilities; on the other hand, due to the mentality of "buying when prices rise, not when they fall", most current demand is in a wait-and-see stage.
3) Real estate is the mother of cycles, the largest pillar industry, and if real estate is stable, the economy, employment, and finance are stable.
As the largest pillar industry, real estate is connected to more than fifty upstream and downstream industries and is related to the employment of tens of millions of people. The decline in real estate investment affects the repair of the balance sheets of residents and enterprises, and the "confidence" issue, etc.
Looking at the added value of real estate industry GDP, generally speaking, industries that account for more than 5% of the economy can become pillar industries of the economy. In 2023, affected by the downward cycle of the real estate industry and changes in market supply and demand relationships, the proportion of the real estate industry in GDP was adjusted to 5.9%, but it is still equal to the level in 2014.
Looking at real estate development investment, from 2000 to 2023, the proportion of real estate development investment in fixed asset investment increased from 14.9% to 22.0%, which means that more than 1/5 of the funds for fixed asset investment across the country every year are invested in the real estate industry.
Looking at the drive of upstream and downstream industries, real estate drives the output value of dozens of upstream and downstream industrial chains. Real estate directly drives manufacturing sectors related to housing, such as building materials, furniture, and wholesale, through investment and consumption. According to the National Bureau of Statistics' latest 2020 input-output table, we estimate that the broad real estate industry completely drives the GDP of upstream and downstream industrial chains by 10 trillion yuan, and directly drives the GDP of upstream and downstream industrial chains by 2.4 trillion yuan.From the perspective of its impact on finance, real estate is an important channel for driving credit expansion and economic development.
1) Real estate assets are of high quality, serving as the most important collateral to create fundamental conditions for credit expansion. From 2008 to 2023, the balance of real estate loans in China increased from 5.3 trillion to 52.6 trillion, and the proportion of real estate loans to the total loan balance increased from 17.4% to 22.2%. The recent decrease in the proportion of real estate loans is mainly due to policy guidance to revert housing to its residential attribute.
2) Real estate projects involve high investment amounts, large scales, and long development chains. Real estate companies' land acquisition and construction activities drive investment and require credit support, which is part of credit expansion. In 2023, the balance of real estate development loans accounted for 6.1% of the total loan balance.
3) Housing loans are an important means to support residents in purchasing homes and improving living conditions. In 2023, the balance of housing loans for residents in China accounted for 47.7% of the liabilities of the residential sector and 16.1% of the loan balance of financial institutions.
4 China's real estate market still has significant room for growth
At present, China's urbanization rate is 66.2%, and with the demand for improved housing, there is still significant room for the real estate market. Our research over the past six years has found that, taking into account the urbanization process, improved housing demand, and urban renewal, the future demand for China's real estate market is expected to decline, but there is still room for development in the medium to long term. According to our calculations, from 2024 to 2030, China's total housing demand will be about 6.5 billion square meters, with an average annual increase in housing demand of about 930 million square meters, which will not drop significantly to a low level.
We estimate that in 2024, China's annual new urban residential demand will be about 940 million square meters, including 340 million square meters for rigid demand, 360 million square meters for improved demand, and 240 million square meters for renewal demand. By 2030, we expect China's housing demand to slowly decrease to 910 million square meters, with rigid demand at 250 million square meters, improved demand at 370 million square meters, and renewal demand at 290 million square meters. In terms of structure, from 2024 to 2030, the proportions of rigid demand, improved demand, and renewal demand will be 29.0%, 41.1%, and 29.8%, respectively, with improved demand becoming the largest support for China's housing market.
5 Three strategies to save the real estate market: Establish a 5 trillion housing bank, continue to lower interest rates, and fully lift purchase restrictions.In the short term, three strategies can save the real estate market.
1) Establish a large-scale housing bank with over 5 trillion yuan to purchase and store properties. The interest rates should be low, the terms long, the scale large, and the distribution fair. This would involve buying land and commercial housing inventory from developers for rental and affordable housing. Local governments, after obtaining funds from commercial banks, would pay developers to alleviate their financial pressure. This multifaceted approach addresses local finances, developer cash flow, and the issue of "unfinished buildings" for residents, while also establishing a housing security system for new citizens, which would be applauded by all sectors. The central bank's establishment of a 300 billion yuan loan for affordable housing is on the right track, but the fund size is relatively small. With a 1.75% interest rate on the loan, combined with financing and operational costs, the overall cost is high, and local purchasing motivation is insufficient. Improvements can be made in the following four areas:
Interest rates: The current annual interest rate for affordable housing loans is 1.75%, and it is suggested to reduce it to 1.5% or lower, allowing state-owned enterprises to cover costs with the profits from purchasing and storing properties.
Terms: The current term for affordable housing loans is 1 year, with the possibility of four extensions. Considering the long-term nature of affordable housing projects and the repayment period of 15-30 years, the term for purchasing and storing related funds should match the project's payback period.
Scale: The 300 billion yuan may be a preliminary attempt. The government's purchasing and storing model is an effective way to solve the real estate dilemma, and continuous reinforcement is needed in the future. We believe that to reduce the national housing turnover cycle to within 18 months, the total amount of funds required should be increased to 5 trillion yuan.
Regulation: The purchased commercial housing should be positioned as low-rent housing and affordable housing, and it is necessary to strengthen fair distribution and the safety net function to ensure the housing needs of families in difficulty.
2) Continue to lower interest rates, including reducing the interest rates on existing mortgages, and coordinate with tax reductions to decrease the cost of purchasing a home, lighten the burden on residents, and reduce bank liability costs through reserve requirement ratio reductions. The decrease in LPR and the addition of points has led to a significant difference between previous mortgage rates and new home purchase rates. As cities successively cancel or lower the lower limits of mortgage rates, combined with LPR reductions, new mortgage rates are entering the "3 era." The interest rate spread between new loans and existing loans is widening, which indirectly increases the pressure on residents' loans. To alleviate the pressure on banks' net interest margins, targeted reserve requirement ratio reductions and continued deposit rate cuts can be coordinated.
Adjustment range: In the last round, the average reduction in existing mortgage rates was 73 basis points, and the new policy on September 24 mentioned an average reduction of 50 basis points for existing mortgages this time.
Adjustment method: The previous method involved changing contract terms and reducing the added points. Whether this round can include cross-bank "mortgage transfers" and other methods still awaits specific plan releases.
Adjustment scope: The last round of adjustments only involved first homes, and the interest rates for second homes were not adjusted. In the future, it is possible to consider reducing the existing mortgage rates for second homes.3) Fully eliminate purchase restrictions and return to marketization to release demand for first-time homebuyers and improvement-type demand. Second-tier cities have basically fully relaxed restrictions, and first-tier cities should also gradually fully relax restrictions. Guangzhou has already fully relaxed restrictions, and subsequently, Shenzhen and Shanghai can fully relax purchase restrictions. Beijing can first relax restrictions on purchases outside the Fifth Ring Road and for large apartments. This is to support the demand for first-time homebuyers and improvement-type demand, and to promote the stabilization of the real estate market. The stage of real estate development has changed, and previous tightening measures should be adjusted as soon as possible to prevent a balance sheet recession. Currently, real estate has shifted from "preventing overheating" to "preventing overcooling," and there is no need to worry that lifting purchase restrictions will cause the market to overheat; it is the right time to relax purchase restrictions.
In the long term, with the "urban cluster strategy, financial stability, linkage between people and land, real estate tax, and the combination of renting and purchasing" as the core, a new real estate model can be accelerated.
Leave A Reply