Can the "most lenient policy in history" activate the property market?

China News Weekly

2024-05-18 17:37Published on the official account of China News Weekly in Beijing

On May 17, the central bank issued a number of blockbuster new real estate policies: canceling the lower limit of the interest rate policy for commercial personal housing loans for the first and second houses at the national level; lowering the interest rate on CPF loans; The minimum down payment ratio for commercial personal housing loans for the first house is adjusted to not less than 15%, and the minimum down payment ratio for commercial personal housing loans for the second house is adjusted to not less than 25%.

Recently, the housing purchase restriction policy has been rapidly withdrawn. In just two months, hot cities such as Nanjing, Chengdu, Suzhou, Changsha, Hangzhou and Xi'an have withdrawn from housing purchase restrictions in unison. Even in the monolithic first-tier cities, the purchase restriction policy is shrinking rapidly. For example, in Guangzhou, South China, only the central area of 120 square meters of housing is still restricted, Beijing has also relaxed the peripheral housing purchase policy for the first time in 13 years, household registration and non-household registration on the basis of the original quota, can buy an additional set of peripheral housing, Shenzhen and Shanghai also have the same rhythm.

The background of the withdrawal of the purchase restriction policy is that the Politburo meeting on April 30 made it clear that "the policy measures to study and digest the stock of real estate and optimize the incremental housing will be studied as a whole". Objectively speaking, the current inventory is too large and the demand is weak, so it is necessary to inject effective purchasing power to repair the market momentum, hedge the price signal instability caused by the decline in demand, the sharp decline in sales collection, and the contraction of the whole chain of the industry and the risk contagion. The current inventory pressure in the property market, including both new housing inventory and second-hand housing inventory, is mutually restrictive and significantly different from the previous round of "destocking".

Photo/EG365

How much inventory pressure is there in the property market?

The reason for the "destocking" of the property market launched in 2014 can be traced back to the expansion of real estate and upstream and downstream fields in response to the global financial crisis in 2008~2009, and then generated huge inventory and production capacity. However, at that time, it was a period of rapid urbanization and metropolitan construction, and the scope of the commercial housing market was also rapidly extending in second- and third-tier cities, with huge demand to digest inventory, and the transformation of industrial and mining areas and shantytowns also provided new impetus. But to the present, the space at both ends of the supply and demand of commercial housing has touched the ceiling.

In the words of the Politburo meeting of the Central Committee, it is to "adapt to the new situation of major changes in the relationship between real estate supply and demand". On the supply side, second-hand housing began to dominate in the stock era. Second-hand housing listings in hot cities generally exceed that of new houses for sale, with second-hand housing listings in Hangzhou, Shanghai, Nanjing and other places at about 200,000 units, but only about 70,000 new houses for sale; The second-hand housing in Shenzhen and Guangzhou is listed at about 150,000 units, and the new houses are for sale about 9~110,000 units. In terms of sales, at the end of 2023, 7 provinces and cities had second-hand housing transactions exceeding new homes, and in February this year, 11 provinces and cities had more second-hand housing transactions than new homes. In the first quarter of this year, second-hand housing transactions in Guangzhou and Shenzhen reached 2.3 times that of new houses.

The second-hand housing market dominates supply and demand, essentially because of its "low total price, low unit price, and excellent location (with degree)", which matches the current demand, which is very different from the large-scale and improved new housing. In 1~4 months, the proportion of second-hand housing transactions below 90 square meters in hot cities was 60%~80%, and the second-hand housing transactions below 3 million yuan in Shanghai accounted for nearly 40%. However, even though second-hand housing transactions dominate, the transaction volume cannot catch up with the number of second-hand housing listings, resulting in the number of second-hand housing listings continuing to hit new highs. According to statistics from Zhuge Research Institute, in March 2024, the number of second-hand housing listings in Shenzhen surged by 229.6% year-on-year, and the number of second-hand housing listings in Shanghai increased by 78.49% year-on-year.

It can be seen that the rigid demand is highly sensitive to prices, and the number of superimposed listings is growing, among which there are a large number of cash-out listings, or due to the tight capital chain, or not optimistic about the follow-up price, etc., resulting in the continuous decline of second-hand housing prices. According to the data of the National Bureau of Statistics, excluding the slight rebound after the epidemic in February ~ April 2023, from September 2022 to the present, the second-hand housing price index has fallen for 28 consecutive months, exceeding the 11-month decline cycle before and after the start of the last round of destocking (May 2014 ~ March 2015).

In the era of stock, second-hand housing began to dominate the supply side, and the listing of second-hand housing in hot cities generally exceeded that of new housing for sale. Photo/Visual China

Let's look at the new housing market. In 2021~2022, the pricing of new houses is lower than that of surrounding second-hand houses, and the advantage of "price inversion" has kept a good trend for new houses in hot cities, but after the second quarter of 2023, due to the continuous decline in the price of second-hand houses, the price advantage of new houses disappears, and the difficulty of delivery caused by the contagion of developers' debt risks also restricts the decentralization. At the same time, second-hand housing has evolved to a stage where many small owners are competing to list and sell their houses. So far, second-hand housing and new housing have shifted from the previous substitution relationship to a competitive price reduction relationship.

The most prominent thing is that the sales of "sub-new houses" (10-year-old buildings) account for about 30% of second-hand housing sales, and with their price advantages, part of the improved demand has shifted to second-hand housing. For new houses, although the potential for improved demand is greater, under the expectation of a strong price drop in second-hand houses, the replacement cycle of "sell one and buy one" will be extended (especially selling "old and dilapidated" to buy new houses). Coupled with the fact that the debts undertaken during the high turnover period in the past have matured one after another, the government has also stepped up the supervision of new housing delivery, and developers can only continue to reduce prices and promotions.

However, among the owners of second-hand houses, there are more floating profits from early purchases and are willing to bear a greater price reduction. However, the price reduction of new homes is limited, mainly because the cost is too high. Since 2022, developers have returned to the central areas of hot cities to compete for improvement buyers, and land prices have remained high and price reductions have been limited. In addition, the market still expects that it will be difficult to deliver, and the rate of new projects in hot cities according to CRIC statistics has dropped from more than 50% in 2022 to about 30% recently, resulting in a large amount of old inventory (listings sold in batches in previous years).

According to CRIC statistics, the proportion of "old inventory" in 30 hot cities will reach 55% in 2023. In other words, more than half of the new homes for sale are from 2023 and previous years. Therefore, this is also the reason why the enthusiasm of developers to acquire land and start construction has declined, because even if new houses are added, they may not be able to sell, but will only increase the pressure of the tight capital chain. In the first quarter of 2022~2024, the average annual decline in the area of new real estate construction in the country was as high as 29.2%, and the average annual decline in the area of sales in the same period was 17.4%.

According to the National Bureau of Statistics, the current national commercial housing inventory is about 750 million square meters, which has exceeded the historical high of 710 million square meters in 2015 for three consecutive months. According to the calculation of Shenwan Securities Research Institute, using the moving average of sales in the past three months as the denominator, the depletion period of saleable area in 80 major cities at the end of March this year was 33.3 months, of which the first, second and third lines were 25.5 months, 31.7 months and 38.2 months respectively.

New homes are becoming more and more difficult to maintain, and the volume of transactions has fallen to 10 years ago, mainly due to the decline in the momentum for improvement. First of all, second-hand houses cannot be sold, and the transaction cycle is very long, especially for those old and dilapidated; Secondly, the fundamentals such as comprehensive employment, income, and housing price expectations do not want to change, after all, there is a place to live; Finally, it must be admitted that the potential for upgrading housing consumption has been overestimated. In the past asset boom period, there was indeed an incentive to change houses, but to a large extent, it was the result of asset price expectations, leverage, herd behavior, and expected inflation. Now, after washing all the lead and returning to normal, not many people can afford to spend a house with a unit price of "50,000+" and a total price of more than 5 million, which is the real side.

This may be the reason for the "high inventory" of new homes. Combined with the second-hand housing, the pressure on inventory is very large, which is the direct reason for the withdrawal of the purchase restriction policy.

The "era of speculation" will be gone forever

In other words, this is the reason why in early May, hot first- and second-tier cities withdrew or contracted purchase restrictions after the Politburo meeting on April 30 made it clear that "the policy measures to digest the stock of real estate and optimize the incremental housing stock were comprehensively studied". Moreover, whether it is inventory pressure, housing price expectations (no longer superstitious that housing prices only rise and fall, or even expected to fall), or the purchase groups that remain in the market (mainly rigid demand and improved demand), or the motivation to increase leverage to buy houses, etc., the significance of the existence of the purchase restriction policy is not great.

Therefore, from the perspective of curbing investment in speculation and buying multiple suites (occupying resources), there is no need for purchase restriction policies. It is also reasonable to withdraw from the purchase restriction policy. Moreover, even the periphery of first-tier cities, due to the large-scale construction of new areas or functional areas in the past few rounds of recovery cycles, has now reached the point of destocking. For example, according to the statistics of Centaline Real Estate, in 2023, the decommissioning cycle of new houses in Beijing's far suburbs (Huairou, Pinggu, Miyun and Yanqing) will be as high as 4.7 years. This is also the reason why the first-tier cities have recently relaxed the peripheral purchase restriction policy.

For example, on May 6, when Shenzhen relaxed the restrictions on purchases, the three groups (non-registered people, families with many children, and enterprises) will be directed to the periphery. On September 20 last year, Guangzhou relaxed the purchase restrictions in the first round, which was also the relaxation of the restrictions on the purchase of houses in the periphery. In January this year, Shanghai relaxed the restrictions on the purchase of houses by talents in Qingpu and Fengxian, and the restrictions on single house purchases in the city were also directed to the outer ring or the five new cities.

From the perspective of curbing investment in housing speculation and buying multiple suites (occupying resources), the significance of the existence of the purchase restriction policy is no longer great. Photo/Visual China

In the next step, the remaining six purchase restriction areas (first-tier cities, Tianjin and Hainan) will also loosen the purchase restriction policy one after another, and only the central areas of first-tier cities and areas with restricted development (such as Sanya in Hainan, the central ecological core area, etc.) will retain the purchase restriction policy, and other areas will completely withdraw from the purchase restriction policy. Taking a step back, if the follow-up property market is hot again, it is completely possible to pick up the purchase restriction policy again. Administrative measures such as purchase restrictions have always adhered to the principle of acting against the wind, and the market will be withdrawn when it is cold, and picked up when it is hot.

Against the backdrop of significant changes in supply and demand, the number of listings on the market has been growing. For example, the second-hand houses of investment owners and replacement owners are listed, and enterprises sell houses in consideration of performance needs and capital chain pressure, and the stock of idle properties is revitalized. This is a reversal of the "long" of all parties in the super-boom stage of the property market in the past 20 years. Given the housing supply (including second-hand homes) and demographics, gone are the days of leveraged multi-home ownership, holding and earning a premium.

The current "too drastic" overshoot situation is the only way for the house to transition from financial attributes to commodity attributes and people's livelihood attributes: under the financial attributes, the more it rises, the more it buys, and it is to buy with leverage. Under the commodity/livelihood attribute, the lower the price, the more consumption. The question is, now that the price is much lower, why not buy it?

At present, it is still halfway through the transition from financial attributes to general consumer goods attributes. The various local stimulus, including the withdrawal of purchase restrictions, are nothing more than an attempt to restore or repair this financial attribute, rather than the attribute of general consumer goods. Because, only under the financial attributes, the land can be sold at a high price, the funds from all parties will rush in, and real estate can bring huge benefits to the local government. More critically, the so-called high housing prices are raised under the financial attributes. If you suddenly transition to commodity attributes, you will inevitably experience a sharp drop in prices and trading volume. This is an unbearable burden, so all localities should be stimulated and purchase restrictions should be relaxed.

With the exception of a few areas, large-scale purchase restrictions such as those from 2011 to 2014 and from 2016 to 2022 will become permanent history. From April 2010, when Beijing first launched purchase restrictions, to 2014, when it completely withdrew (only Beijing, Shanghai, Guangzhou, Shenzhen and Sanya were retained), and then in October 2016, when purchase restrictions were launched nationwide, covering third- and fourth-tier cities, at most, about 100 cities across the country implemented purchase restriction policies, even including national poverty-stricken counties such as Linquan in Anhui Province.

For a long time in the future, we are facing a situation where policies focus on stabilizing the industry and market, enterprises are facing continuous industry risk release, and the market has to face the status quo of oversupply of housing.

It can't be retreated, and a combination of policies is needed

Let's analyze the effect of the withdrawal policy. For first- and second-tier hot cities, many housing demand has been suppressed under the mode of implementing the purchase restriction policy for more than 6 years and the government directly intervening in the qualifications for housing purchases. For second-tier cities that have completely withdrawn from the purchase restriction policy, the policy will directly affect the demand for the purchase of multiple homes, such as buying a house for children's schooling, employment, marriage, and parents' pension.

For the first-tier cities (mainly Beijing, Shanghai, and Shenzhen) that have narrowed the scope of purchase restrictions, they can first release the demand for housing from migrants or single people, such as Shanghai, Shenzhen, and Beijing, all of which have relaxed the restrictions on non-household registration or single people buying houses in peripheral areas, or can buy one more set, or shrink the restrictions on the number of years of individual income tax or social security payment for the purchase of the first house, or relax the criteria for talent identification. First-tier cities have a concentrated migrant population and many single people. In the past, foreigners have insisted on paying social security or individual income tax for five consecutive years when buying their first home, and Beijing and Shanghai have even vetoed the purchase of houses by single foreigners. This is not in line with the current situation of delaying marriage and childbearing, and there are many single people.

For first-tier cities, the loosening of the near-term purchase policy is mainly concentrated in the peripheral areas, which is related to the large housing supply in the peripheral areas. The relaxation of purchase restrictions is conducive to meeting demand while realizing the decentralization of new houses in the periphery, and the recent decline in peripheral housing prices has also improved the ability to pay. At the same time, while guiding the outward transfer of housing demand, it can also optimize the population and industrial layout, so that employment and industry can follow the population and housing, and alleviate the excessive concentration of resources in the central area.

However, there is a limit to the amount of purchasing power released that has been suppressed by policy.

At present, the effect of the complete cancellation of purchase restrictions remains to be tested by the market. Photo/Visual China

First, house price and income expectations are cautious, and demand for multiple homes has weakened. Second, housing prices are still high, and the overall purchasing power of the non-local population and single people is limited, and the situation is exacerbated by cautious expectations. Thirdly, the pressure on the inventory for sale is high, the price decline of old housing is expected to be stronger, the purchasing power of rigid demand is insufficient, and the replacement chain of "sell one buy one" is not smooth. Finally, the relaxation of purchase restrictions and the purchase of houses in households have led to the siphoning of the purchasing power of surrounding cities and mainland cities. For example, the recent withdrawal of Hangzhou and Chengdu from purchase restrictions has formed an obvious siphon effect on the effective purchasing power of other cities in the province and even the whole country, and the purchase of houses has exacerbated this situation.

The relaxation of purchase restrictions can bring about the purchase demand for multiple suites, which itself is a phenomenon that only exists under financial attributes. But now, this logic has changed, and the basis of purchase restrictions has changed.

At present, the biggest problem in the property market is that there is high inventory pressure, a mismatch between supply and demand with the ability to pay, and unresolved fundamental constraints. The rigid demand represented by the 270 million new citizens and the migrant population has great potential, but the income and employment cannot support the inventory digestion; the supply efficiency of the stock housing is not high, and the potential for improved demand is large, but the circulation of primary and second-hand housing is not smooth, and it is also facing fundamental constraints such as employment and income.

Therefore, while canceling the purchase restriction policy, a combination of policies is also needed. For example, cities with large inventories have tightened land supply and started construction; Implement the renovation of old communities to make up for shortcomings and improve the efficiency of stock housing listing; Revitalize some well-equipped houses as affordable housing for rent or allocation, and at the same time match purchasing power, active transactions, and stabilize expectations.

There is a clear potential for improvement, but it just can't be delivered. As a result, either the government directly went down, or the association organized, and various "old for new" practices began to appear. Recently, Nanjing and other cities have clearly rebuilt or acquired the stock of housing for affordable housing, targeted to solve the housing needs of new citizens, it is estimated that this practice will be promoted in the future, the combination of destocking and affordable housing preparation. Of course, the more basic combination is to stabilize employment and income expectations. Only in this way will the commercial housing market be actively traded, and the improved demand and multi-suite configuration demand released by the purchase restriction will be realized, which will drive the entire market to stabilize.

 (The author is the chief researcher of the Guangdong Provincial Housing Policy Research Center)

Published in the 1140th issue of China News Weekly magazine on May 20, 2024

Magazine title: Say goodbye to purchase restrictions, end or begin

Reporter: Li Yujia

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