There is an inflection point signal in the real estate market

Per Jing Special Commentator Yin Zhongzhong (Chief Economist of Rongsheng Development, Director of Real Estate Finance Research Center of Chinese Academy of Social Sciences)

The real estate market belongs to the cyclical fluctuation of the market, market participants must follow the law of cyclical fluctuations, accurate judgment of the inflection point of the market cycle is crucial.

This round of real estate market upswing cycle began in early 2015 and has been running for 6 years, and the length of this real estate upswing cycle has set a record. After July this year, the real estate market has undergone major changes, and the author believes that the national real estate market has shown an inflection point signal.

Four major inflection point signals

The characteristics of the real estate market from January to July this year are: the supply and demand of the land market are both weak, and the financing environment continues to be tight; the growth rate of real estate development investment, the sales area of commercial housing, and the growth rate of commercial housing sales have slowed down for two consecutive months; and the price growth rate of newly built commercial housing and second-hand housing has fallen in an all-round way.

First, the growth rate of real estate development investment continued to slow down slightly. The growth rate of real estate development investment has slowed slightly for two consecutive months. From January to July this year, the national real estate development investment was 8,489.5 billion yuan, an increase of 12.7% year-on-year; the average growth rate in two years was 8.0%, and the growth rate was slightly down 0.2 percentage points from the first half of the year, a slight decline for two consecutive months. Among them, residential investment was 6,398 billion yuan, an increase of 14.9% year-on-year; the average growth rate of 9.4% in two years, the growth rate fell slightly for three consecutive months.

Leading indicators show that the growth rate of real estate development investment will continue to slow down. From January to July this year, the land acquisition area of real estate development enterprises continued to decline year-on-year; the growth rate of housing construction area continued to slow down; the growth rate of new housing construction area continued to slow down, and for the first time in the year, it fell year-on-year (-0.9%).

Second, the overall supply and demand of the land market are weakening. From January to July this year, the land purchase area of real estate development enterprises was 87.64 million square meters, down 9.3% year-on-year; the land transaction price was 512.1 billion yuan, down 4.8% year-on-year.

The supply and demand of the residential land market have continued to decline, and the "two concentrations" policy has changed the market rhythm. According to the China Index Institute, the supply and demand scale of residential land in 300 cities across the country has declined. From January to July, the planned construction area of residential land launched in 300 cities across the country fell by 13.8% year-on-year, and the planned construction area of transactions fell by 16.7% year-on-year, and the decline rate was expanded compared with the first half of the year. In july, there was no concentrated land auction in key cities, the increase in land transfer fees fell significantly, the price of residential land fell, and the premium rate stabilized. According to data from the China Index Academy, from January to July this year, the total amount of land transfer in 300 cities across the country was 3,212.3 billion yuan, an increase of 1% year-on-year; the transaction price of residential land fell significantly, and the premium rate stabilized.

Third, the financing environment continues to be tight overall. From January to July this year, real estate development enterprises had funds in place of 11,897 billion yuan, an increase of 18.2% year-on-year; an average growth of 9.2% in two years. From the perspective of the average growth rate of the two years, domestic loans, self-financing, deposits and advance receipts, and personal mortgage loans increased by 0.08%, 7%, 15.6% and 11.7% respectively.

Domestic loans have declined year-on-year for two consecutive months, and the proportion of sales collections has shown a downward trend. Under the requirements of macro-prudential management of real estate finance, the real estate financial environment continues to tighten. Domestic loans fell 4.5% year-on-year, down two consecutive months of year-on-year decline. Under the influence of the slowdown in the growth rate of commercial housing sales and the tightening of personal mortgage loans, the proportion of deposits and advance receipts and personal mortgage loans in the source of funds has shown a downward trend.

Fourth, the growth rate of commercial housing sales has slowed down, and the increase in house prices has declined. From January to July this year, the average growth rate of commercial housing sales area and sales in two years slowed down for the second consecutive month. From January to July this year, the sales area of commercial housing 101648 million square meters, an increase of 21.5% year-on-year; the average growth rate of two years was 7%. Sales of commercial housing reached 1,064.3 billion yuan, an increase of 30.7% year-on-year and an average growth of 13.1% in two years. The average growth rate of commercial housing sales area and sales volume in two consecutive years slowed down for the second consecutive month.

In the month of July this year, the sales area of commercial residential buildings fell year-on-year. From January to July, the sales area of commercial residential buildings increased by 22.7% year-on-year, an average growth rate of 7.9% in two years; the sales of commercial residential buildings increased by 33.1% year-on-year, an average growth rate of 15.6% in two years; and the average growth rate of two years slowed down for the second consecutive month. In the month of July, the sales area of commercial residential buildings fell by 9.5% year-on-year, down 0.5% from the same period in 2019; and the sales of commercial residential buildings fell by 7.2% year-on-year, an increase of 9.3% over the same period in 2019.

The price increase of newly built commercial housing and second-hand housing has fallen across the board. In July, the prices of newly built commercial housing in 51 of the 70 large and medium-sized cities rose month-on-month. Price growth in both new and second-hand homes in all tier cities has slowed. In the cities interviewed, the momentum of excessively rapid house price increases has mostly converged. In July, in Shanghai, Guangzhou, Chongqing, Hefei and other places where house prices rose faster in the early stage, the increase in house prices narrowed significantly; the price of second-hand residential buildings in Shenzhen fell by 0.4% month-on-month, falling for three consecutive months, and the decline rate was further expanding.

Common prosperity will affect real estate

The above market data indicates that the market has an inflection point signal. Combined with a series of recent policy signals, the author believes that it can further confirm that there is an inflection point signal in the market.

On August 17, General Secretary Xi Jinping presided over the tenth meeting of the Central Financial and Economic Commission, which mainly studied the issue of common prosperity, and at the same time studied the issue of preventing and resolving major financial risks and doing a good job in financial stability and development. Both of these efforts are closely related to the real estate market, and understanding the spirit of this conference is of great significance to judging the trend of real estate policy.

The meeting stressed that common prosperity is the prosperity of the entire people, the prosperity of the masses of the people in both the material and spiritual lives, not the prosperity of a small number of people, nor the uniform egalitarianism. Smooth upward mobility channels, create opportunities for more people to get rich, and form a development environment in which everyone participates. Allow some people to get rich first, get rich first, help get rich later, and focus on encouraging leaders who work hard, operate legally, and dare to start a business. It is necessary to persist in proceeding step by step, fully estimate the long-term, arduous, and complex nature of common prosperity, and encourage all localities to explore effective paths according to local conditions, sum up experience, and gradually push it forward.

The meeting also pointed out that in the process of high-quality development, we should promote common prosperity, correctly handle the relationship between efficiency and fairness, build a basic institutional arrangement for the coordination of primary distribution, redistribution and tertiary distribution, and increase the adjustment of taxation, social security, transfer payments and improve accuracy.

In the author's view, the real estate market is the main carrier of residents' wealth, and to achieve the goal of common prosperity, it must involve improving the real estate tax policy. The meeting of the Central Financial and Economic Commission only made a directional description of common prosperity, and there were no specific operational measures, but it can refer to Zhejiang's policy measures in creating a common prosperity demonstration zone and speculate on possible policy measures through other channels.

The core content is to improve the income distribution policy for high-income groups. At present, China is mainly based on indirect taxes, which are often regressive. Functionally, direct taxes are more conducive to narrowing income disparities. In terms of personal income tax, we should pay more attention to the protection of low-income earners and improve the special additional deduction policy. Some experts suggest that under the premise of reducing other taxes or reducing tax rates, property taxes (such as real estate tax, inheritance gift tax, etc.) should be introduced in a timely manner to adjust the income of high-income groups.

The author believes that the central government's emphasis on common prosperity will have a direct impact on the real estate industry, mainly in the following aspects:

First, the government will increase the supply of affordable housing. It is clear from the 14th Five-Year Plan that in order to alleviate the purchasing pressure on young people, the government will significantly increase the supply of affordable housing, especially the supply of affordable rental housing. The corresponding land supply also gives priority to ensuring affordable housing, which will squeeze the supply and demand for commercial housing, reducing the market space of real estate development enterprises.

Second, regulating the incomes of high-income groups will have an impact on the demand for high-end housing. In order to achieve the goal of the common prosperity policy, it is necessary to increase the anti-monopoly efforts of the industry. This will adversely affect high-income industries and groups, which in turn will have a greater impact on high housing prices in first-tier cities.

Third, the imposition of real estate taxes will have a greater impact on the market. After more than 20 years of accumulation, the accumulation of profit plates in the real estate market is very huge, and the collection of real estate taxes may lead to the concentration of these profit plates, which will have a certain impact on the market in the short term.

In short, whether it is the characteristics of market operation or the changes in policy, it indicates that the inflection point of the real estate market has quietly arrived. For real estate development enterprises, only by conforming to the market trend, striving to reduce financial leverage, and moving forward steadily can they avoid various risks and challenges.

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