10,000 homes will be traded-in, and the city has sold

"The old house has been hanging on the platform for almost two years, and the price has dropped from 1.86 million to 1.45 million, and no one has bought it yet. The 66-year-old Wu Gang family of three generations and six people live in a 90-square-meter three-bedroom apartment in Jinshui District, Zhengzhou City.

This 16-year-old residence was once a smash hit in the market due to its superior green environment and property management. As the number of family members increased, the house became crowded, and the grandson, who had reached puberty, still did not have a private room. Moving to a more spacious and comfortable four-bedroom apartment became a wish for the whole family.

However, due to the lack of elevators and aging facilities, this community has become a "hot potato" in today's market. Two years ago, Wu Gang put the old house up for sale with hope, and the people who looked at the house came one after another, and the house price fell again and again. The agent told him that there were two options before him: either sell it further to the "fracture price" or wait for the government's new policy.

The so-called new policy is the second-hand housing replacement activity proposed in the "Zhengzhou City Work Plan for Promoting the Real Estate Market to "Sell the Old and Buy the New, and Trade in the Old for the New" (Trial) (hereinafter referred to as the "Plan") issued by Zhengzhou on April 1. According to the relevant person in charge of the Zhengzhou Housing Management Bureau, the official release of the "Plan" means that Zhengzhou has officially entered a new era of housing trade-in.

In December 2021, the old residential area of the second ring road in Zhengzhou's Zhongyuan District was surrounded by high-rise buildings inside and outside the third ring road. Photo/Visual China

Can a property be traded-in?

"If you can't sell your old house, how can you buy a new house?" Wu Gang's voice may be the common idea of many second-hand homeowners in Zhengzhou. He used up most of his savings when he bought the house in full, and now he can only get the money for the old house to buy the house.

Liang Botao, general manager of Henan Company of China Index Research Institute, told China News Weekly that the current downward pressure on the real estate industry has not been eased, and the overall motivation of residents to buy homes is insufficient.

Since 2023, the number of second-hand housing listings nationwide has continued to rise. As of March 30 this year, there have been more than 100,000 second-hand houses listed in 12 cities including Chongqing, Chengdu, Tianjin, Qingdao, Nanjing, Wuhan and Zhengzhou, of which Chongqing, Chengdu, Tianjin, Suzhou, Nanjing and Hangzhou have exceeded 150,000 units, and Chongqing and Chengdu have exceeded 220,000 units.

According to data from the National Bureau of Statistics, in 2023, the sales area of newly built commercial housing in the country will be 1.12 billion square meters, a year-on-year decrease of 8.5%, and the sales of newly built commercial housing will be 11.7 trillion yuan, a year-on-year decrease of 6.5%.

In order to solve the dilemma of new and second-hand houses, many cities have successively encouraged home buyers to enter the market by optimizing the purchase restriction policy, adjusting the housing provident fund support policy, lowering the down payment ratio and interest rate threshold, issuing housing purchase subsidies, and "recognising the house without recognising the loan" for the first house.

And the trade-in real estate policy also came into being. The so-called housing trade-in policy means that buyers first lock in new houses, and then intermediaries, real estate companies, etc. help sell or directly purchase old houses, and local governments can provide housing replacement subsidies or give tax exemptions.

"The new model of housing trade-in in the market is generally based on two considerations, one is to meet the demand for improved housing, and the other is to promote the transaction of the first-hand housing market and the second-hand housing market through trade-in under the large first-hand housing market and second-hand housing stock. Professor of Business School of Chinese University and director of the Urban and Real Estate Research Center of the National Academy of Development and Strategy, said in an interview with China News Weekly.

In 2022, a real estate project in Nanshan, Shenzhen, launched a "house-for-house, old-for-new" activity, exchanging the developer's apartment house for the owner's residential house. However, this attempt was questioned at the time and was considered a "gimmick" by the developers to promote tricks.

This policy really became a hot word on the Internet at the end of August last year, Shandong Zibo launched the ""old for new" worry-free house purchase proposal, Zibo, which has its own traffic, pulled this model into the public eye. Subsequently, similar models gradually landed in many cities, including Nanjing, Tai'an, Taicang, Yangzhou, Lianyungang, Ningbo, Xuancheng, Bozhou and other places. According to incomplete statistics from China News Weekly, at least more than 30 cities have expressed their participation in housing trade-in.

From the perspective of implementation effect, there are great differences in different regions. In the first week after the launch of the "new purchase", according to the data of the Ningbo Real Estate Transaction Information Service Network, the transaction volume of second-hand houses increased by 15% month-on-month, setting a new high in the second half of the year, and the number of new housing filings increased by 20% month-on-month.

There are also some urban markets that have a mediocre response. This month's report by the China Index Research Institute pointed out that on the whole, although many regions have proposed housing trade-in policies, they are still in the exploratory stage, and the overall effect is not obvious at present.

Zhang Dawei, chief analyst of Centaline Real Estate, is not optimistic about this policy. He believes that the quality of the properties involved in the replacement is generally not very good or the price is not suitable, otherwise there is no need to worry about selling at all, and there is no need to participate in the trade-in. Therefore, the new mode of housing trade-in is essentially to replace "unsellable second-hand houses" with "unsellable first-hand houses" and "replace one problem with another".

Under these premises, Zhengzhou's housing trade-in plan cannot be described as "large-scale". The plan clearly sets a target of 10,000 units for purchase this year: 5,000 units in the main urban area will be acquired by Zhengzhou Urban Development Group Co., Ltd. (hereinafter referred to as "Zhengzhou Urban Development") as affordable rental housing, and the remaining 5,000 units will be completed through the market-oriented method of "tripartite negotiation" between buyers, intermediaries and real estate enterprises.

State-owned assets into the bureau

To understand Zhengzhou's Plan, we need to first understand the three major types of housing trade-in in different cities.

The first model is to issue subsidies to real estate enterprises or individuals participating in the trade-in during the implementation of the policy. For example, Haining, Zhejiang Province proposed that during the period from September 27, 2023 to September 26, 2024, real estate enterprises will be encouraged to purchase the stock houses of intending buyers, and if real estate enterprises purchase stock houses, they will be given a financial subsidy of 2% of the total purchase price of the enterprise, and Yangzhou, Suzhou and other places in Jiangsu Province will issue deed tax subsidies for home buyers.

In the second model, the buyer, the developer and the intermediary sign an agreement, and the determined intending buyer locks in the new house to the developer and pays a deposit, while the intermediary is responsible for giving priority to the sale of the buyer's old house. If the old house is sold, the new house purchase procedures will be carried out, and if it is not sold, the new house subscription contract can be terminated, and the developer will refund the subscription money in full. Cities such as Nanjing and Nantong in Jiangsu, Zibo in Shandong and Ningbo in Zhejiang are implementing this model.

The third model is a model in which the buyer and the developer sign an agreement, and the private enterprise or state-owned enterprise developer takes over the house. Specifically, after the old house that meets the conditions for acquisition by the real estate enterprise is evaluated, the sale proceeds will be used to purchase the new housing project of the real estate enterprise.

Zhengzhou's plan is a combination of three models: a 30% deed tax subsidy, a market-oriented model in which intermediaries and developers participate, and state-owned acquisitions.

The most concerned by the public is the move of state-owned assets into the bureau to collect the house - citizens who want to change houses can register the information of the houses to be sold through the Zhengzhou real estate transaction service platform, and at the same time select the intended purchase source, and sign the "commercial housing subscription agreement" with the development company, and then Zhengzhou Chengfa Anju Co., Ltd. (a wholly-owned subsidiary of Zhengzhou Chengfa) conducts information review and on-site investigation of the old houses, and the houses with the acquisition conditions are handed over to the appraisal agency to issue the price assessment results (the people who change the house do not bear the assessment costs) The company negotiated with the residents who had changed their houses for acquisitions and applied for loans from financial institutions. If the negotiation is successful, the funds for the sale of second-hand houses will be transferred to the tripartite supervision fund account, and the funds will be used for the purchase of newly built commercial houses. Finally, the people who change houses, the urban development housing company and the development enterprise go through the handover procedures for the second-hand housing.

According to the statistics of China News Weekly, Zhengzhou is not the first city where state-owned assets have entered the bureau to trade in the old for the new, and at least 8 wholly state-owned enterprises have entered the housing trade-in, including Taicang City and Xiangcheng District in Suzhou, Jiangsu Province, Lianyungang City, Liangxi District in Wuxi, Qidong City and Hai'an City in Nantong, and Xuancheng City in Anhui Province.

The first to test the water was Taicang, Jiangsu. From September 28, 2023, the old houses that meet certain conditions within the Taicang city area can be replaced with the new houses launched by state-owned enterprises, and after third-party evaluation, part of the new house price will be deducted from the old house price.

Taicang's policy has been adjusted three times. In the first batch, Taicang Urban Development Group (hereinafter referred to as "Taicang Urban Development") launched 100 houses in three communities. In the second batch, in addition to the urban development group, the urban investment group has also entered the bureau, and the new housing communities that can be purchased have been expanded to seven, and the number of registration places is limited to 800. In the third batch, that is, on January 12 this year, Taicang adjusted a series of policies. For example, the replacement threshold has been optimized, and the original "one set for one" has been upgraded to "multiple sets for one set". One of the most popular patch policies is that school district enrollment in old houses will be retained for two years.

Regarding the adjustment policy, the relevant person in charge of Taicang Urban Development pointed out in an interview with the media that after the first batch of trade-in work, through the analysis of the customer groups that have not been replaced, it was found that the supply of new houses is limited, so more new houses in different areas, different area segments, and different total price segments will be added in the second batch. After the completion of the two batches of replacement work, the citizens who had not been replaced were reminded that there were problems with the school district, insufficient funds for one set of replacements, parking garages could not be replaced, and the age of the buyers could not be loaned, so with the support of various departments of the city, the policy was improved.

The trade-in of state-owned assets is regarded by many experts as a means to speed up the destocking of housing. Liang Botao believes that in the current situation that the transaction volume of second-hand houses in Zhengzhou is higher than that of new houses, the government's participation and leadership will help speed up the liquidity of stock. He further pointed out that the market-oriented "new housing" cycle is relatively long and there are many uncertainties, and the entry of state-owned assets as a supplement will help improve the efficiency of housing trade-in.

Yu Xiaofen, dean of the China Housing and Real Estate Research Institute of Zhejiang University of Technology, also said in an interview with China News Weekly that the trade-in model of state-owned assets endorsement has the impact of boosting market confidence and promoting market activity. However, she also admitted that in the face of a large number of second-hand houses in the market, it is still necessary to observe how much the limited number of state-owned assets can play in alleviating the fundamentals of the current real estate market.

Where does the money come from?

For example, the first batch of housing trade-in targets set by Suzhou Taicang, Nantong Hai'an and Wuxi Liangxi are basically 100 and 200 units, while Zhengzhou initially set a target of 5,000 units.

Guo Weiwei believes that Zhengzhou has a large population base and a higher demand for potential improvements, and the number of 5,000 units should be estimated by the local government based on other factors such as comprehensive transaction volume. Chen Wang, a real estate person in Zhengzhou, also believes that Zhengzhou has a large inventory of second-hand houses and new houses, and it is not surprising that the goal of setting "high standards" is not surprising.

The acquisition of old houses is a test of the developer's ability to raise funds and dispose of assets. The state-owned assets entry bureau has put forward high requirements for the financial strength of local state-owned platform companies. Zhang Dawei said that if the overall scale of the trade-in is not large, such as the goal of 1,200 sets, it is easier to achieve, "but the goal of 5,000 sets in Zhengzhou is more difficult to achieve." Especially at present, the local finances are "living a tight life", and the source of funds for the "national team" to enter the bureau is indeed a problem.

Chen Wang calculated an account. The second-hand houses in Zhengzhou are calculated with a unit price of 12,000 yuan and an average area of 100 square meters, and the purchase price of a house is 1.2 million yuan, and 5,000 sets require 6 billion yuan. As the main body of Zhengzhou's round of acquisitions, Zhengzhou Urban Development's third quarter report in 2023 shows that its liabilities total 118.517 billion yuan.

The source of funds for Zhengzhou's move needs to comprehensively consider the whereabouts of Zhengzhou's state-owned assets to acquire second-hand houses. According to the plan, the housing acquired by the state-owned affordable housing operating company must meet the conditions of superior industrial facilities such as regional location and education, and then these second-hand housing will be used to enrich the supply of affordable rental housing.

Judging from public information, Zhengzhou received a sum of money for affordable housing last year. In January 2023, the People's Bank of China issued the Notice on Matters Related to the Pilot of the Rental Housing Loan Support Program, establishing the "Rental Housing Loan Support Program" with a quota of 100 billion yuan to issue rental housing purchase loans to eight pilot cities including Chongqing, Jinan, Zhengzhou, Changchun, Chengdu, Fuzhou, Qingdao and Tianjin for the purchase of existing housing and the expansion of affordable rental housing and long-term rental housing supply. In principle, the interest rate of the loan shall not exceed 3%, and for loans that meet the requirements, the People's Bank of China will provide financial support at 100% of the loan principal, with an interest rate of 1.75%.

At present, five cities, Fuzhou, Jinan, Tianjin, Qingdao and Chongqing, have been approved for loans, and four cities except Chongqing have been approved for a total of 4.086 billion yuan. Among them, Chongqing and Qingdao have clearly acquired 4,207 units and 2,319 units for affordable rental housing for new citizens, young people and other groups. The operators of these five urban loans all have state-owned backgrounds.

As a pilot city of the "100 Billion Support Plan for Rental Housing Loans", Zhengzhou's state-owned assets have entered the bureau to purchase stock housing for use as affordable rental housing.

On the day of the issuance of the plan, the Zhengzhou Municipal Housing Management Bureau also announced the main goals and tasks for 2024, which mentioned that to speed up the construction of the housing security system, including increasing financial support, and actively apply for the support scope of central, provincial and municipal capital subsidies and local government special bonds for eligible projects, so as to ensure the completion of the annual task of 15,000 sets of affordable rental housing.

A number of experts have speculated to China News Weekly that the loan is likely to be one of the sources of funds for Zhengzhou's state-owned assets to enter the bureau. In fact, in the mode of state-owned assets entering the bureau, Guo Dawei found that the whereabouts of old houses are basically combined with the construction of the housing security system, "that is, there may be funds for housing security in it".

How is a second-hand house priced?

What kind of second-hand housing to acquire and how to price it are the most questioned issues in the new mode of housing trade-in by state-owned assets. Yu Xiaofen also believes that the transaction price of second-hand housing can range from hundreds of thousands to millions, involving large interests and non-standardized commodities, making it difficult to find a basis for scientific decision-making to acquire housing, and then it is easy to transfer interests.

On April 15, Zhengzhou Urban Development and Zhengzhou Housing and Real Estate Association announced that the nature of the second-hand housing acquired in the pilot stage must be ordinary commercial housing, and the real estate certificate or real estate ownership certificate has been obtained, and it has not been more than 15 years since the date of completion of the house.

This condition has sparked controversy from the outside world. Wu Gang, who has always been looking forward to the implementation of the state-owned assets support policy, is very disappointed, and his family's house is 16 years old and was excluded. "Since the government is to support the demand for improved housing, do old houses within 15 years need to be improved or old houses that are more than 20 years old need to be improved?" Chen Wang also believes that the significance of state-owned assets intervention and support is to improve the rigid demand and solve the problem of difficulty in changing houses, one of which is to replace older second-hand houses. Nowadays, old houses with high age are excluded, and "it is better to hand them over to the market for free trading".

There is also public opinion that the age of the house may be related to the construction of the housing security system in the final destination of such old houses. After all, after the old houses are rented out in the future, they may still face a lot of problems such as water leakage and aging housing facilities, and the operation and maintenance costs of state-owned assets in the later stage will be high.

In addition, there is also concern about how to price the purchase of second-hand housing.

Judging from the disclosed information, the determination of the purchase price of second-hand housing is directly related to the appraisal subject. In Zhengzhou, the company randomly selects institutions from a list of appraisal agencies, which evaluate the transaction price of the second-hand housing to be acquired in accordance with the principle of marketization. Taicang will randomly select 3 of the 5 institutions with professional qualifications to evaluate the old houses and take the average to obtain the final purchase price.

The purchase price is important because it is directly related to the price difference when a second-hand home owner buys a new home. Some cities have clearly stated that the total price of second-hand commercial housing should not be higher than the percentage of the total price of new housing purchases, such as Liangxi District of Wuxi City, which stipulates that this value is 60%. In other words, the old house can be offset by up to 60% of the purchase price of the new house, that is, if the appraisal price of the old house is 2 million yuan, you need to buy a new house of more than 3.33 million yuan. In Taicang, this proportion has been adjusted from the earliest 60% to 80%, which means that after selling an old house of 2 million yuan, you must buy a house of more than 2.5 million yuan.

A real estate consultant from Taicang Chengfa told China News Weekly that the trade-in process is to first select the intended house, and then evaluate the old house. The price of a new home is a fixed price, and "the price of a new home will not be raised because it has to meet the proportional requirements".

How to ensure that the money from the old house actually flows to the new housing market? In Hai'an, the bank issues a house ticket of the same value as the second-hand house and hands it over to the customer, while in Zhengzhou, the funds from the sale of the second-hand house are transferred to a third-party supervision fund account.

It remains to be seen what the final effect of the state-owned assets entry model will achieve. In an interview with the media, a real estate consultant from Taicang Chengfa said that the first batch of 200 sets of places was eventually sold less than 40 sets. Li Xu, general manager of Taicang Urban Development, said in an interview with local media that the second batch of 800 sets of places had more than 300 registered citizens.

Ji Yikang, the head of a real estate agency in Taicang, told China News Weekly that the response in the early stage was lackluster, and the core contradiction was that the prices of the real estate participating in the trade-in were generally more expensive and were designated real estate, and the participants were forced to pay a higher price difference to improve the housing environment, so only a small number of people with a particularly strong demand for replacement participated.

What to do with the old house?

In addition to the source and flow of funds, another problem that needs to be solved in the state-owned assets entry model is the management and disposal of old houses.

At present, the old houses are used as affordable housing or talent apartments. For example, in Hai'an, the old houses will be used as talent apartments, rental housing for migrant workers, or included in the affordable rental housing system. In Taicang, old houses will be transformed into talent apartments or affordable housing.

Yu Xiaofen believes that the acquisition of second-hand housing by state-owned assets is based on two considerations: one is the need for local housing security, compared with the new affordable housing, the acquisition of second-hand housing can quickly meet the housing needs of low- and middle-income families and talents in the city;

The construction of affordable housing is divided into two types of affordable housing: rental type and placement type, so it is optional to rent or sell. Yan Yuejin, research director of the E-House Research Institute, inferred that under the state-owned assets model, it should be rent-based and unlikely to sell, "but it can also be rented first and then sold, and the lease period can be sold for five years, and then it can be slowly explored in various places."

However, many experts have pointed out that compared with the government's centralized construction of affordable housing, how to effectively manage the affordable housing purchased in residential areas has also become a major challenge. Taking Zhengzhou as an example, at present, the government mainly builds affordable housing. Chen Wang said that last year, the Zhengzhou municipal government encouraged the new construction, expansion, and reconstruction of existing land to participate in the city's affordable rental housing, and provided financial support. There have been successful cases before, most of which have been used for affordable rental housing through the repurchase of village collective resettlement housing.

Chen Wang believes that from the perspective of market demand, the scattered distribution of affordable rental housing has a certain rationality, because it can meet the needs of different customers. However, from the perspective of government operation, it is too difficult, and the rental market is now oversaturated, so he is not optimistic.

Zhang Lin, a platform intermediary in Zhengzhou, also expressed his doubts to China News Weekly that if it is a piecemeal acquisition of second-hand housing and making it an affordable housing, it may cause dissatisfaction among other owners and even affect the intention of potential consumers to buy second-hand housing in the community.

There is also an issue of equity in the distribution of old houses. As Zhang Dawei said, the essence of the trade-in of state-owned housing is that the government subsidizes the people who improve their living conditions with the money used to protect low-income groups, which in itself has caused injustice. In the allocation of old housing, there are differences in the quality and geographical location of affordable housing, and how to allocate and who to allocate are difficult problems. Yu Xiaofen also agrees that due to the price of one house, there is a gap between relatively high value and relative difference in the allocation of these properties, and I am afraid that unfair treatment will be formed for the protection objects or talents.

The effect of housing trade-in remains to be further observed.

(Wu Gang, Chen Wang, and Zhang Lin are pseudonyms in the article)

Published in the 1137th issue of China News Weekly magazine on April 22, 2024

Magazine title: State-owned assets into the bureau housing trade-in

Author: Xie Xuewei