Real estate market growth trends and risks

In 2022, China's real estate market will still develop steadily and there will be no major reversals. But we need to be vigilant that there may be some real estate companies that will erupt into debt crises. For domestic home buyers, there may be no small risk to face, which needs to be identified

Text | Yi Xianrong

How will the Chinese real estate market be judged in 2022, what kind of trend will emerge, and where will the risks be? In this judgment and analysis, one is to look at what happened in the real estate market in 2021; the other is to look at the tendency dominated by real estate policy in 2022.

First, what happened to the real estate market in 2021. After the outbreak of the debt crisis of Evergrande Group, China's real estate market was full of lamentations, believing that with this as a sign, China's real estate market will have a major turning point, especially the market analysis report issued by several real estate agents said that due to the impact of the debt crisis of Evergrande Group, the real estate market will fall off a cliff in November 2021, and based on this, the Chinese real estate market may experience a comprehensive recession in 2022. Therefore, the policy recommendations given by these analysis reports are that because China's real estate industry accounts for nearly 30% of GDP, accounts for more than 60% of bank loans, and accounts for more than 70% of residents' wealth (they also regard a set of housing where residents live as investment products, but in fact, the vast majority of residents with only one set of housing, how much house prices rise, how much it accounts for household wealth is basically meaningless), in order to ensure economic growth, prevent bank crises, and residents' wealth does not shrink, the current real estate regulation and control policies that control too much should be adjusted Remove the policy of excessive restrictions on the real estate market and return the real estate market to the track of rapid growth.

However, the author has pointed out that the debt crisis of Evergrande Group is only an individual incident, and there are more than 100,000 real estate development enterprises in the country, and there is no wave of bankruptcy of real estate enterprises in any place. Also, although Evergrande Group's real estate development scale is very large, it is nothing for the real estate market with annual sales of nearly 18 trillion yuan. What's more, by October 2021, the real estate market is operating very normally and there are no problems. Then, in the absence of major emergencies, the probability of a sudden reversal of the domestic real estate market in November will not be too high. Therefore, first of all, the bank loan data released by the central bank in November, housing loans reached 733.7 billion yuan, accounting for 58% of the entire month's loans, seeing this data, we know that the real estate sales data in November will certainly not be bad, and the domestic real estate market situation has not changed at all.

In fact, data released by the National Bureau of Statistics show that from January to November 2021, the national real estate development investment 137314 billion yuan, an increase of 6.0% year-on-year; an increase of 13.2% over January-November 2019, an average increase of 6.4% in two years. Among them, residential investment 103587 billion yuan, an increase of 8.1%. The sales area of commercial housing 158131 million square meters, an increase of 4.8% year-on-year; an increase of 6.2% over January-November 2019, an average increase of 3.1% in two years. Among them, the residential sales area increased by 4.4%. Sales of commercial housing 161667 billion yuan, an increase of 8.5%; an increase of 16.3% over January-November 2019, an average increase of 7.8% in two years. Among them, residential sales increased by 9.3%.

These data illustrate the following problems: First, the current prosperity of China's housing market has not stopped, and the area and sales amount of housing sales in 2021 are still at a record high. It can be said that since 2016, although various domestic media have been exaggerating how many strict real estate control policies have been introduced, the more regulation and control policies have been introduced in China's real estate market, the higher the degree of market prosperity.

For example, in 2015, China's housing sales amount was only 8.73 trillion yuan, and in 2016, it was considered to be the largest real estate macro-control policy in history, but the amount of housing sales rose to 11.76 trillion yuan that year, an increase of 35%, while the national housing sales amount reached 17.36 trillion yuan by 2020. In five years, the amount of housing sales in the country has doubled, with an average annual growth rate of 20%. Of course, this growth is more driven by the rise in housing prices in various cities. This trend has not changed in 2021, and the amount of sales in the domestic real estate market is also at a record. Therefore, as far as the real estate market situation in 2021 is concerned, this trend in the domestic real estate market will continue in 2022, and there will be no reversal. This is driven by the current real estate market interest relationship and real estate policy.

Second, in the data released by the National Bureau of Statistics, there are several data worth paying attention to. There is a serious regional differentiation in both housing investment and housing sales. The central region performed better, but the northeast region experienced serious negative growth. This negative growth may be related to the economic performance and population movements in these regions, and it is estimated that this divergence will continue in 2022, which has formed a long-term trend that cannot be changed by short-term policies. Affected by the debt crisis of Evergrande Group, the enthusiasm of private real estate developers to obtain land has weakened across the board. This also means that private real estate developers are not as optimistic about the domestic real estate prospects as before, but instead state-owned capital is entering the land market. What problems these changes raise should be closely watched. In addition to the analysis of the actual market situation, as a policy-led domestic real estate market, the trend of real estate regulation and control policies is also an important factor.

Before the Central Economic Work Conference, many analyses expected that in order to resolve the real estate market risks such as the debt crisis of Evergrande Group, there will be major adjustments in the domestic real estate market in 2022, such as in the second half of 2008, the bank credit policy will be fully relaxed, and various restrictive regulation and control policies issued by local governments in recent years will be cancelled. However, the deployment of the 2021 Central Economic Work Conference for the real estate work in 2022 is to continue to adhere to the positioning that the house is used to live, not to speculate, strengthen the guidance of expectations, explore new development models, adhere to the combination of rent and purchase, accelerate the development of the long-term rental housing market, promote the construction of affordable housing, support the commercial housing market to better meet the reasonable housing needs of home buyers, and promote the virtuous circle and healthy development of the real estate industry because of the city's policies. These contents have not changed much from the content of the real estate macro-control policies in previous years.

First, the positioning of the real estate market of "housing and not speculation" has not changed. The author has emphasized for many years that housing is the cornerstone of the sustainable and healthy development of China's real estate market, and it is the foundation of the long-term mechanism of the real estate market. Since the market positioning principle of "housing and not speculation" was established in 2016, in a long period of time, various regulatory policies for domestic real estate are the concretization or implementation of this principle, but the degree of implementation every year is only fast or slow.

Second, in recent years, it has been emphasized that the "three stability" of the real estate regulation and control policy base point (stable house price, stable land price, and stable expectations) has not appeared in the 2021 document, and then replaced by "strengthening the guidance of expectations". Regarding the "three stability" of the real estate regulation and control policy, the author pointed out a few years ago that the "three stability" and "housing and not speculation" are contradictory. "Housing is not speculation" emphasizes the dominance of housing market consumption, while "three stability" is based on the leading nature of real estate market investment. And in an investment-led real estate market, the policy goal of real estate is to promote the stability of house prices, which means that house prices only rise and do not fall, and house prices only rise and do not fall, which will only strengthen the investment dominance of the real estate market; if house prices fall, the "three stability" control goals may become empty words.

Therefore, the real estate regulation and control policy in 2022 emphasizes more on "strengthening the guidance of expectations". The "strengthening of expectation guidance" here is estimated to be the most important thing in those cities where there is a serious surplus in the real estate market and shrinking sales, which may have a complete reversal of market expectations caused by the beginning of the decline in house prices, and thus trigger a local real estate market crisis and a banking crisis.

The third is to explore a new development model for the real estate market. This is a new formulation. The question now is what kind of real estate market development model to adapt to China. Because, as far as the current Chinese real estate market is concerned, the premise is that China has a population of 1.4 billion, there is a huge real estate market that no country can match, and China's urbanization rate is still a big gap compared with developed countries, and farmers going to the city means that there is a huge housing consumption market.

In addition, the housing ownership rate of urban residents in China has reached more than 89%, which should also be the highest in the world. In addition to the shortage of housing supply in first-tier cities and some cities, housing in other cities is basically in a state of excess, especially in third- and fourth-tier cities, and the problem of housing surplus will be more serious. In this context, the housing development model of any country in the world is unlikely to adapt to China. In the first decade, to a large extent, Chinese mainland followed the Hong Kong real estate model, but it was only half of the Hong Kong model in China, such as high housing prices, high land prices, at least the proportion of high affordable housing did not learn, but only in recent years.

In addition, Singapore's housing model cannot be learned in China, and it is impossible for the finance to use huge amounts of money to build affordable housing, and at the same time, the excessive housing ownership rate in Chinese cities is unlikely to allow residents to return to the housing security system. Of course, the government hopes to develop a housing rental market to establish a new model of real estate market that can be rented and purchased at the same time. However, we should also see that the government has been emphasizing the development of the housing rental market for several years, but why the housing rental market in China's first-tier cities has not been able to prosper. Some scholars have analyzed that this is more related to the traditional concept of domestic residents, that is, residents are more willing to buy housing to hold than rent housing to solve the problem of housing.

In fact, there are incentive mechanism issues, including the supply of rental housing, the price of housing rents, and the protection of the interests of tenants. For example, the government has been advocating the development of the housing rental market for several years, and has also allowed collective land to build rental housing, but in the past few years, there have been too few rental projects on collective land. Why? The root cause is that under high housing prices, the collective land of farmers is simply not willing to be used to build rental housing. Therefore, the rental housing market and the affordable housing market will continue to maintain the status quo in 2021.

In 2022, the risk of China's housing market is mainly in house prices, and if house prices continue to rise, the risk of the real estate market is too high. However, in the long run, house prices are higher, and whether it can be sustained with time for space is a big problem. Of course, there are two major risks to pay attention to: First, those who have a serious surplus of housing, those cities that have introduced housing price limit orders, the real estate market expectations may be reversed, which may lead to a further decline in house prices and the outbreak of a real estate market crisis.

In addition, in the face of the "gray rhinoceros" of the real estate market, under the "three red lines" of the Banking and Insurance Regulatory Commission, it may not only be Evergrande Group that faces the debt crisis, and there may be some real estate companies that will have a debt crisis in 2022. For these crises, the tone of the central government is to deal with them in a market-oriented and law-based manner, and real estate enterprises take responsibility for themselves. Therefore, for domestic home buyers, this may face a lot of risks, must be identified, do not easily enter.

Overall, China's real estate market will still develop steadily in 2022, and there will be no major reversal. This is a scenario that both the central government and local governments are willing to see, and it is also the goal of real estate regulation and control policies, but in the long run, whether it can be sustained is questionable.

(The author is a professor at the School of Economics of Qingdao University: Editor: Wang Yanchun)