Recently, there are two things worth paying attention to in the property market!
First, there is no lower limit on the interest rate of the first home loan in more than 50 cities;
Second, more than 30 cities have launched the "old for new" second-hand housing.
The direct reason is that the new house can't be sold!
The reason behind it is that the second-hand can't be removed, and the chain of "selling one and buying one" is broken!
Now, the supply of new houses is large and large, and it is more improved. Most buyers have to sell their second-hand houses in order to have the funds to change their houses. [There is no lower limit on the interest rate of the first home loan + the combination of second-hand housing "trade-in"] stimulates the entry of just-in-demand and digests second-hand housing.
As a result, the new house can be sold!
At present, hindering the virtuous cycle of the property market (rigid demand and improvement, new housing and second-hand housing) is the ability to "take over" just needed, and the motivation to change houses. For example, Shenzhen's housing ownership rate is only 30%, and 10 million people live in urban villages.
However, potential demand ≠ effective demand.
In the past two years, the property market has been sluggish, but second-hand housing is indeed picking up, showing that just need (have to buy a house) is entering. However, analyzing the transaction structure, it is found that the second-hand houses traded are all houses with "controllable" total price and unit price, such as 65% of the second-hand housing transactions below 3 million in Guangzhou. In addition, only houses whose prices "fall into place" can be sold. The so-called fall in place, or fall to the buyer's psychological price, or lower than the price of the same unit in the community (or the price of the previous set), can be traded.
Just imagine, only the "lowest price" can be traded, and the scale of this market is difficult to scale. Because, under the heavy expectation of falling prices, in addition to those who have to buy a house (such as marriage, degree, etc.), the best option is to "postpone buying a house", because the price may be lower next year.
Source: Q4 2023 Urban Depositor Survey Report
Therefore, the first quarter of this year is very similar to the first quarter of last year, the accumulated rigid demand (having to buy a house) has digested the ultra-low-priced housing, and the remaining sellers are unwilling to reduce the price, and the rigid demand has also been consumed in the short term, and the market has once again entered a state of hovering at a low level.
It's also a long period of emotional drain!
At present, the transaction cycle of second-hand housing is about 150-400 days. The owners are getting more and more untenable. In the first quarter of the coming year, the second-hand housing "Xiaoyangchun" will be formed again.
The demand for improvement is also huge. However, since the last cycle (2016), as housing prices have risen, rigid demand has been squeezed out, and improved demand has begun to dominate. By now, the demand for improvement has been unleashed for several years. At the moment, it is either because housing prices are not rising and they are unwilling to improve (there is a place to live anyway), or because income and employment expectations are unstable and they are unable to improve.
Source: Q4 2023 Urban Depositor Survey Report
In short, the trend of shrinking market volume is obvious!
Recently, the state has continued to emphasize that "make good use of the autonomy of regulation and control, and adjust and optimize real estate policies according to local conditions"!
At present, rigid demand dominates the market and has become the engine of the property market. Because, only the need to digest second-hand housing can drive improvement and new home sales.
In the face of weak demand, mortgage rates are expected to continue to fall!
Quite simply, although mortgage rates have fallen to record lows, they are significantly higher than bank term interest rates or capital protected interest rates. Now, it is difficult for banks to find capital-guaranteed wealth management products with a yield higher than 3%. However, the mortgage rate for the first home is also as low as 3.75% (LPR-20). It is not cost-effective to take a high interest rate and buy an asset whose price has fallen.
Therefore, it is expected that more and more cities will not have a lower limit on the interest rate of the first home loan. In the medium term, mortgage interest rates may fall to at least the same level as the capital protection interest rate, around 2.5%-3%. In this way, with a sum of money in hand, the cost of buying a house and financial management are equal. "Don't buy a house, but go to manage money", this account is not so cost-effective, and it is an incentive to buy a house.
Source: wind
This may not be enough!
After all, there is a cost to the mortgage. If house prices are still falling, it is not cost-effective to buy a house and hold it. Therefore, when real estate moves from the first half of the "unilateral rise" to the "second half", it is difficult to change the tendency to list for sale. In the future, the deposit rate may fall to around 1%. Only in this way is it not cost-effective to list the house for sale, because you can still get a yield of about 1% by holding the house and renting it out.
In this way, the effect is that there is no need to sell the house, because it is not profitable to deposit in the bank, it is better to continue to rent out the house to earn rent.
This situation will soon come. The chart above shows that in 2012, before the deposit moved to wealth management, the interest rate of the 5-year fixed deposit could reach more than 5%. Later, financial innovation surged, and deposits moved to various wealth management products on a large scale. Now, with the implementation of the new regulations on asset management and the transformation of wealth management net worth, there is a trend of "depositization" in wealth management, and the guaranteed capital return can only be about 2%.
In terms of the current economic situation, it is an inevitable trend for deposit interest rates to continue to fall sharply, and about 1% may be ahead!
What makes me very confused is that it seems that the more houses are sold, the more they sell!
For example, in the first quarter, only 31% of developers' new launches were launched. In 2019, the rate of new launches was 68%, and in 2023, it will be 38%.
More than 55% of the projects for sale by real estate companies are "old inventory" in 2022 and before!
Source: CRIC Real Estate Research
In terms of narrow inventory, the de-escalation cycle of first- and second-tier cities is about 25 months, and the digestion cycle of 25 cities exceeds the warning line of 18 months; from the perspective of generalized inventory (not started + under construction), the digestion cycle of the whole country is 51.5 months, and many cities are more than 5 years.
Source: CRIC Real Estate Research
In terms of second-hand housing, both supply and demand, it has now surpassed new housing and become the dominant property market. In terms of listing, the hot first- and second-tier cities are generally 15-200,000 units, and the second-hand houses in Chongqing are for sale more than 400,000 units, with 20,000 new units added every month, and the inventory is more than 5 times that of new houses on sale. Chengdu, Wuhan, Zhengzhou, Xi'an, etc. are roughly the same. The scale of this listing is estimated to take several years to digest the period.
In the past 20 years, the property market has been in the "first half", and it seems that there are not enough houses to sell, and everyone is "all in". Now, the market has entered the "second half", and they are all out to sell houses, in addition to the small owners who are listed for sale, the houses that were previously held by developers and reluctant to sell, the houses in the hands of the government, the houses in the hands of listed companies, and the houses of state-owned enterprises/urban investment have all been taken out and sold.
To put it bluntly, in the past 20 years, houses have been regarded as the most important wealth carrier by the whole society, so they have tried every possible way to expand the supply. It is said that real estate has location, that is, houses in the core area are scarce, so they have the characteristics of value preservation or appreciation. For example, Shanghai Xintiandi, Hangzhou West Lake. However, this location and scarcity have been straightened and leveled to the greatest extent in China.
What does it mean? It means that the local government is trying to create some scarce and unique value areas, such as various CBD, functional areas, new districts, and so on. At the same time, developers and financial institutions cooperate with this "artificial planning", and a large amount of funds enter, giving the market an illusion of "planning cash", and micro groups follow the entry. As a result, supply creates demand, and demand drives supply.
For example, in the past, it was said that the central area was short of land resources, but this principle has not been true in recent years. Because of the large-scale renovation of the central area, the land function can be adjusted (such as the transformation of industrial to residential and commercial to residential), which greatly improves the flexibility of land supply. In Guangzhou, in recent years, the supply of new properties in the central area has been very involuted, not only the price war within the new properties, but also with the surrounding second-hand houses.
Taking Guangzhou CBD Tianhe, where the author is located, as an example, there are only 5 new projects for sale in 2020. At present, there are as many as 30 new projects for sale, which are basically concentrated in the Tianhe East area, which has the potential for new land supply. According to the current public real estate data, there are more than 6,800 houses that have been certified and have not yet been sold (excluding those that have not yet been opened or have not obtained a pre-sale certificate). In 2023, Tianhe sold a total of 2,820 new homes.
Data source: Official account "Guangzhou Real Estate"
This means that it will take about 2 and a half years for Tianhe to sell out of new houses for sale!
In the past, everyone believed that Tianhe District was the central area and CBD, with less land and fewer houses, and housing prices appreciated for a long time. As a result, the local government responded to this demand and perception by making various plans, selling a large amount of land and supplying houses. As a result, what was originally scarce is no longer scarce. This means that real estate that has location value and cannot be expanded can also be supplied in large quantities.
For example, a high-quality degree house could have maintained and increased its value. But now, "education equalization + declining birth rate + education involution + declining economic return on higher education" and so on have led to the myth of degree housing being broken. In recent years, the price of degree housing in first-tier cities has fallen first. Of course, many parents are also wondering if it is worth investing huge amounts of money, energy, and emotional value to gamble on their children's childhood?
At the same time, each new project has basically achieved the blessing of famous schools or the creation of special landscapes!
The inability to expand supply or scarcity is the carrier of wealth (e.g. gold)!
Once this attribute is worn out, the supply can be expanded, the scarcity is no longer scarce, and the characteristics of the wealth carrier are no longer recognized. As a result, in the past, everyone's "All In" sentiment began to reverse. That's why, all of a sudden, so many subjects are coming out to sell their houses.