DDN Business Insider | Rollout of real estate policies: Will they help stabilize housing market?
Editor's note: Since November, a flurry of real estate policies was introduced in mainland China. Following the announcement of a 10 trillion-yuan debt restructuring measure, the Ministry of Housing and Urban-Rural Development immediately declared an expansion on the scope of policies supporting the renovation of urban villages. Subsequently, Shanghai, Beijing, and Shenzhen also announced the removal of standards for ordinary and non-ordinary housing. Will the mainland's continuous push for new policies further promote the "stabilization post-decline" trend in the real estate market? What are the recent highlights in Hong Kong's property market?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
Since November, a flurry of real estate policies was introduced in mainland China. Following the announcement of a 10 trillion-yuan debt restructuring measure, the Ministry of Housing and Urban-Rural Development immediately declared an expansion on the scope of policies supporting the renovation of urban villages. Subsequently, Shanghai, Beijing, and Shenzhen also announced the removal of standards for ordinary and non-ordinary housing. Will the mainland's continuous push for new policies further promote the "stabilization post-decline" trend in the real estate market? What are the recent highlights in Hong Kong's property market? To discuss these topics, we have invited Yan Yuejin, Deputy Dean of the Shanghai-based E-House China Real Estate Research and Development Institution; Lu Wenxi, Market Analyst at Shanghai Zhongyuan Real Estate Brokerage Co., Ltd; and Bu Shaoming, CEO of the Residential Department at Midland Realty, to provide their insights and analysis. Welcome, everyone!
【Anchor】First, I would like to ask Mr. Yan about this recent series of real estate policies, some of which target first-tier cities, and others radiating towards second and third-tier cities. What is the intrinsic logic and relationship between them?
Currently, there are many policies being introduced, including several for first-tier cities. The overarching logic is focused on reducing transaction costs and ensuring both inflexible and improved-oriented housing demands. This approach is grounded in a comprehensive opening-up in first-tier cities. Therefore, the real estate policies are indeed a significant part of our current legal-financial market. As of November, with the introduction of tax reduction policies in first-tier cities, relevant legal financial policies are entering the most relaxed phase in history.
【Anchor】Yes, regarding the recent series of policies launched by various central ministries and localities, Mr. Lu, what do you think the decision-makers are considering?
Looking at the bigger picture, what we have here is a multi-faceted approach to policies. In the past, policies were more focused on the demand side, such as purchase restrictions and financial aspects. However, this time, in addition to releasing demand, we also see measures aimed at the supply side, such as solutions for developers' financing pressures and inventory on hand. Compared to previous rounds of policies, this round is more comprehensive and more sustainable, and we should expect much more positive feedback from the market..
【Anchor】Good. Some suggest that the real estate policies in Beijing, Shanghai, and Shenzhen mainly aim to release demand for improved housing. Mr. Lu, how large do you expect this segment of the housing demand market to be? What impact do you foresee on housing prices after the policies are officially implemented?
Taking Shanghai for example, if we look at houses between 90 to 144 square meters, it accounts for roughly 60% to 65% of the new housing market and about 30% in the second-hand housing market. Thus, the potential beneficiaries in this market segment are quite broad. Looking at future market developments, we are now trying to boost the demand for improvement-oriented housing. Currently, the demand for larger units has not been fully released, but that should improve with the introduction of these new policies.
【Anchor】Additionally, analysts have pointed out that canceling the standards for ordinary and non-ordinary housing can help to reduce the transaction tax burden on non-ordinary housing, allowing more newly built homes to enter the market to meet the improvement-oriented housing demand. Mr. Yan, how would you evaluate this? How significant will the impact of this policy be?
From current market data, I expect this to have a positive effect on both volume and prices. Since October, market data has shown good month-on-month growth, and the corresponding indicators for housing prices are also starting to turn positive after previous declines, especially from the housing price data of 70 major cities in the country. In these data, first-tier cities have the best performance, flipping positive from past declines. This well reflects the current trend of price and volume stabilization in the housing market, which also means that first-tier cities can play a better exemplary role.
【Anchor】Now, regarding the adjustment on the scope of support for urban village renovation policies, which expanded from the initial 35 major cities to 300 cities at the prefectural level and above now, what do you think this change reflects? How does the arrangement of "monetary compensation" differ from previous housing vouchers?
Regarding urban village renovations, especially housing vouchers, it is important to recognize a significant change. While the concept of housing vouchers is not new, the key difference is that current housing vouchers have a larger financial support behind them. With local governments' special loans in place, the cash flow for these vouchers is secure, making them more valuable. Developers are more willing to accept these vouchers because they can be promptly redeemed for funds from the finance department. Overall, using housing vouchers will improve the efficiency of relevant real estate policies, serving to both arrange for housing resettlement work for those in need and inventory reduction for the supply side.
【Anchor】Yes. On October 17th, at the press conference held by the State Council Information Office, a combination of policies consisting of "four cancellations, four reductions, and two increases" was introduced, and a "monetized resettlement" was publicly proposed again after five years. Mr. Lu, what are your thoughts on this?
Regarding urban village renovation, from the logic of monetized resettlement, the aim is to quickly digest market inventory, including both new and second-hand homes. This will create a positive interaction between the two segments; that is, the monetary compensation can rapidly address the problem of market inventory, and buying a new house directly reduces the developer's inventory. If people choose to buy second-hand homes, the sellers are likely to use those proceeds to improve their own housing. The starting point or the final consumption point of the improvement-oriented demand is also mainly the new house market.
This forms a system that can quickly reduce the inventory of new and second-hand houses.
【Anchor】Good. We know that the last round of monetary compensation for shantytown renovations led to a rise in housing prices. Do you think this new urban village renovation policy will bring about another surge in the real estate market?
I personally believe it will not necessarily lead to a significant upturn like the one we experienced between 2015 and 2018. This is mainly due to the divergence between cities. Based on our observation, the response to policies has been stronger in both first- and second-tier cities, while third-tier and fourth-tier cities are relatively less elastic. Moreover, regarding urban village renovations, the willingness in first- and second-tier cities may be higher, as land supply is relatively limited there. Conversely, in third and fourth-tier cities, the enthusiasm may not be as strong because inventory pressure in third-tier and fourth-tier cities are relatively larger in comparison.
【Anchor】Okay, with the advancement of urban village renovation and dilapidated housing renovation work, Mr. Yan, what kind of impact do you think it will have, and can housing prices stop falling and stabilize?
Regarding the renovation of urban villages, the performance of the real estate market has been positive. It's important to note that this round of urban village renovation is fundamentally different from the renovations at the beginning of the year; now, it is a comprehensive renovation supported by special loans and financial instruments. Overall, we believe that its market effect is somewhat similar to the urban village renovations around 2014. In fact, the urban villages in various places are obviously trying to tap into potential housing demand. It is crucial to help the development of the current real estate market to a great extent. Therefore, aside from the series of home-buying policies, we should pay attention to how urban villages can also bring about considerable potential demand for housing transactions.
【Anchor】Okay, market analysts have indicated that the expansion of the policy support scope for urban village renovation may attract more funds to flow into the relevant cities, positively impacting housing prices. However, this could also lead to uneven capital distribution amongst different cities, exacerbating price differentiation. Mr. Yan, do you agree with this viewpoint?
Currently, the phenomenon of price differentiation in the housing market still needs to be studied further. In the recent market, first- and second-tier cities have performed stronger. Therefore, looking ahead to next year, it is likely that housing prices in these major cities will lead a rebound, while third- and fourth-tier cities will still face tough market pressure. Going forward, we should pay attention to cities like Nanjing and Xiamen, which have seen significant market adjustments in the past two years and may therefore possess considerable room for price growth.
【Anchor】Yes, regarding the viewpoint that this policy may exacerbate price differentiation amongst cities, Mr. Lu, what are your thoughts?
The next round of the market cycle may more clearly show a differentiated state. The closer we get to core cities and core areas within cities, the more robust and stable their housing prices are. In contrast, third- and fourth-tier cities, particularly in more remote areas, may have much weaker upward movement in their prices during the next market cycle.
【Anchor】According to publicly available data, from January to October, the cumulative decline in sales area of newly built commercial housing in mainland China has narrowed for five consecutive months. Mr. Lu, based on the impact of the series of policies and currently announced data, when do you think the real estate market can achieve a "stabilization post decline"?
In the short term, I believe the goal of regulation has already been achieved. When we talk about the need for the real estate market, the goal is essentially to reverse the current decline trend, and warm up the market. Based on current market trading activities, we see that it has maintained well. When looking at the price index of 70 cities, we clearly see a narrowing of the decline in October. The second-hand housing market in first-tier cities, after continuous declines, also showed a slight month-on-month increase in October. Therefore, the short-term expectation of warming up has been achieved, or it can be said to be basically realized. From a medium- to long-term perspective, perhaps by next year or the first half of next year, the market will need further consolidation and strengthening, after which we might see a more meaningful recovery in housing prices.
【Anchor】Mr. Yan, how long do you expect the overall impact of this series of real estate policies on mainland housing prices will take to manifest?
Overall, the current market performance is positive, especially in the fourth quarter. Moving forward, particularly next year, certain structural properties in first-tier cities are expected to perform well. This indicates that our policies are effective, and these first-tier cities can take the lead in playing such a demonstrative role.
【Anchor】Finally, let's turn our attention to Hong Kong. Please welcome Mr. Bu Shaoming, CEO of the Residential Department at Midland Realty, to analyze the recent trends in the Hong Kong real estate market.
【Anchor】Hello! Last week, the new development in North Point attracted significant attention. Do you think this phenomenon could indicate signs of recovery in the Hong Kong property market?
The North Point development is in an excellent location, just one minute's walk from the subway station, and the price per feet of HKD 20,800 is very reasonable, attracting many young buyers. The rent in the area is also high, at HKD 85 per sq. ft, which translates to an appealing 4.5% annual return from rental income for investors, who make up about 40% of the market. The market conditions align with the launch of the property, with the central bank's economic policy reports easing the loan-to-value ratio, it is estimated that the hot sales results of the property prove that the market has strong purchasing power.
【Anchor】Looking towards the end of the year and further, how do you expect the Hong Kong property market to perform?
The U.S. is entering into a rate-cutting cycle, which will benefit Hong Kong's interest rates. In September and November, local banks in Hong Kong followed the U.S. in cutting rates, totaling a half-point reduction; further cuts are expected in December, which should alleviate the mortgage burden. Additionally, rising rents and a trend toward the complete loss of fair rental prices are likely to incentivize more citizens to switch from renting towards buying, this will further drive the demand for home purchases.
The government is actively attracting talent and capital, which is beneficial for market development. This year, we have seen many new residents from Hong Kong and mainland China purchasing properties, and this trend is expected to continue. Furthermore, rental demand remains strong as many new residents prefer renting rather than buying, supporting both rental prices and property values. As long as Hong Kong's economy remains strong, we are optimistic about the performance of the real estate market.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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