The property market is embattled, how much will housing prices fall? The Ministry of Housing and Urban-Rural Development stated that Sun Hongbin gave the bottom line!

New Talks on Real Estate

2024-04-25 08:40Published in Henan

Since 2023, various localities have launched diversified rescue policies for the healthy and stable development of the property market. These policies have not only significantly eased financing conditions, but have also lifted restrictions on purchases and sales almost entirely, while mortgage interest rates and down payment ratios have fallen to historic lows. Entering 2024, the rescue efforts have been further increased, showing the firm support of policymakers for the property market.

The current policy environment of the property market has improved significantly compared with 2022, and the threshold and cost of buying a house have been significantly reduced, which undoubtedly provides a good opportunity for buyers who just need and improve to enter the market. It stands to reason that such a favorable policy environment should be able to quickly promote a rebound in house prices. Taking 2015 as an example, after the introduction of the destocking policy, the property market recovered rapidly, and housing prices also doubled.

However, the property market trend in 2023 has not picked up as expected, but has quickly cooled down after a short period of recovery, and there are still no obvious signs of recovery. Even after the rescue efforts in various places are stepped up in 2024, housing prices will continue to fall, which reflects the unsatisfactory effect of the bailout.

Since 2021, the real estate market in mainland China has gradually cooled down, and the enthusiasm of home buyers has decreased significantly. In this regard, many experts and scholars have pointed out that the real estate industry has entered a downward stage after a long-term boom. As the well-known economist Ma Guangyuan predicted: "Once the sales area of commercial housing in mainland China exceeds 1.8 billion square meters, and the sales volume exceeds 18 trillion yuan, it will symbolize the end of the property market boom, because no matter from which point of view, these data are close to the peak." "The development of the real estate industry is like climbing a peak, once you reach the peak, the next thing to meet is the challenge of going downhill.

According to statistics, in 2021, the sales of newly built commercial housing in mainland China reached 18 trillion yuan, and in 2022, this figure plummeted to 13.3 trillion yuan, a drop of nearly 5 trillion yuan. This fully confirms that since the sales of newly built commercial housing in mainland China exceeded the 18 trillion mark in 2021, the property market has begun to enter a downward channel. The core reason for this situation is that the number of home buyers is decreasing, and the demand for homes in the market is gradually shrinking, making it more difficult to sell homes. In the face of this drastic change in the market, not only developers were caught off guard, but investors and buyers who just needed to buy a home were also unprepared. For real estate companies, in the past, they have relied on a high-debt, high-turnover business model to achieve rapid expansion, but the premise of this model is smooth home sales. However, once the housing sales are in trouble, the capital chain of the real estate company will be seriously impacted, and may even face the risk of breaking the capital chain.

The dilemma of house sales has become a "hot potato" for current real estate companies, and major real estate companies are generally facing severe challenges such as tight capital chains, rising debt ratios and inventory backlogs. The solution to this dilemma is not easy, and only by successfully selling the houses in hand can we inject capital into real estate companies and reduce debt pressure. However, at present, housing sales are sluggish, and although some real estate companies can barely maintain themselves in the short term, in the long run, many real estate companies may be unsustainable. In fact, there have been many real estate companies whose capital chain has been broken, which poses a huge threat to the real estate they are developing, and the phenomenon of shutdown and unfinished work is not uncommon.

According to statistics, the problem of unfinished buildings is becoming more and more serious in various places, and a large number of unfinished properties have appeared in cities such as Changsha, Wuhan, Zhengzhou, Shijiazhuang and Kunming, and these cities have been labeled as unfinished. This has undoubtedly cast a huge shadow on the property market, and people's confidence in the real estate industry is gradually eroding. Off-plan sales have become extremely difficult, as consumers are naturally cautious about buying off-plan properties in the face of so many unfinished and delayed properties.

This situation has caused the real estate market to fall into a vicious circle: the house is difficult to sell, the funds cannot be withdrawn, which in turn affects the construction progress of new houses, and the real estate shutdown has further exacerbated the difficulty of housing sales, and the housing prices have been declining, which has finally deepened people's worries about the development prospects of the real estate industry. Therefore, how to break this vicious circle has become an urgent problem to be solved in the property market. Only by solving the problem of unfinished buildings through effective means and restoring the confidence of the market can we clear the obstacles to the healthy development of the property market.

In fact, the decline in housing prices is indeed good news for those who are eager to buy a house. However, the continued sharp decline in housing prices is not a good thing for them, because people will worry about a further decline in house prices after purchase, causing many people to continue to postpone their home purchase plans, which will not only affect the steady development of the mainland real estate market, but also affect the implementation of overall economic policies.

At the moment, everyone is most concerned about how much house prices will fall, and where exactly the bottom of the house price decline is. For these doubts, Sun Hongbin, the helmsman of Sunac Group, gave a clear response at an annual meeting, which was verified by the market. Sun Hongbin said frankly: "If housing prices fall by more than 30%, most real estate companies will face the dilemma of bankruptcy. In addition, Pan Shiyi has also expressed a similar view, he believes that if house prices fall by more than 20%, most real estate companies will be unsustainable. In the past, many people were skeptical of such assertions, wondering why house prices could soar all the way but not be able to withstand a modest decline. But the reality is that in the past two years, the average house price in the mainland has just fallen by 15%, from 11,030 yuan to 9,293 yuan at the end of February 2024, and many real estate companies have been in trouble. With the expansion of the decline in housing prices in some cities and regions, the number of real estate companies that have gone bankrupt due to the rupture of the capital chain is increasing. Today, even the leading enterprises in the industry are facing the challenge of tight capital chains, and Sunac Group led by Sun Hongbin has not been spared.

Only by solving the current dilemma of high debt in the real estate industry can house prices fall sharply. Otherwise, many real estate companies will face insolvency. In order to resolve this problem, since 2022, various localities have launched "fall restriction orders", aiming to stabilize the property market and prevent excessive decline in housing prices. Entering 2024, various localities have further stepped up their efforts to rescue the market, not only reducing mortgage interest rates and down payment ratios to record lows, but also introducing many housing purchase subsidy policies. The Ministry of Housing and Urban-Rural Development also made it clear that the property market will be dominated by stability in the next few years, indicating that the policy environment of the property market will continue to improve until the property market returns to normal development. For areas where housing prices are too high, there is still a possibility of a correction in housing prices in the future until they reach a reasonable level.

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