On July 21st, the Central Committee of the Communist Party of China’s Decision on Further Comprehensively Deepening Reform and Promoting Chinese Modernization (hereinafter referred to as the Decision), which was deliberated and adopted by the Third Plenary Session of the 20th CPC Central Committee, was released. Among them, the "Decision" pointed out that the establishment of a housing system with both rent and purchase should be accelerated, and a new model of real estate development should be accelerated. Increase the construction and supply of affordable housing to meet the rigid housing needs of wage earners. Support the diversified and improved housing needs of urban and rural residents. Fully give the municipal governments the autonomy to regulate the real estate market, and allow the relevant cities to cancel or reduce the housing purchase restriction policy and cancel the standards for ordinary houses and non-ordinary houses due to the city’s policy. Reform the financing mode of real estate development and the pre-sale system of commercial housing. Improve the real estate tax system.
In recent years, the relationship between supply and demand in the real estate market has undergone major changes, the market is in a period of adjustment, and the land and property market policies are also changing accordingly. How to understand this change is an important prerequisite for better facing the next stage of development.
Analysts believe that the real estate-related expressions in the Decision are rich, including emphasizing and consolidating the original control ideas, such as building a new development model of real estate, increasing the supply of affordable housing, and giving municipal governments the right to control themselves. In some systems, it also puts forward the direction of breaking the situation, such as the pre-sale system of commercial housing and the real estate tax system.
For the changing real estate, these adjustments not only determine the development direction of the industry, but also re-anchor the macro-economic positioning of real estate.
From "Ensuring Growth" to "Steady Growth"
"Decision" on the real estate, to a certain extent, beyond the expectations of the outside world.
Chen Wenjing, director of market research at the Central Finger Research Institute, said that compared with the Decision of the Central Committee of the Communist Party of China on Comprehensively Deepening Reform, which was deliberated and adopted by the Third Plenary Session of the 18th CPC Central Committee, the full text of the Decision of the Third Plenary Session of the 20th CPC Central Committee focused on real estate in terms of "improving the social security system".
In addition, in the aspect of "deepening the reform of land system", there are also contents related to real estate, including allowing farmers to make full use of legally owned houses through leasing, shareholding and cooperation; Establish a coordination mechanism between the allocation of new urban construction land indicators and the increase of permanent population; Formulate policies for the extension and expiration of industrial and commercial land use rights.
Chen Wenjing believes that on the one hand, this shows that the central government attaches importance to the development of the real estate industry, on the other hand, it also points out the direction for the real estate policy in the next few years.
In recent years, the real estate market has bid farewell to high-speed growth and is in a period of adjustment, and China’s economy is also changing to high-quality development. How real estate can better help economic growth has become a new topic.
On July 19th, Han Wenxiu, deputy director of the Central Finance Office and director of the Central Agricultural Office, said at the press conference that China’s real estate market is large in scale and involves a wide range, which has a systematic impact on macroeconomic operation. He said, "We should persist in striving for progress while maintaining stability, making progress first and then breaking through, solve problems in progress by means of reform, speed up the transformation of kinetic energy between old and new development, and provide diversified and strong power support for high-quality development."
Although the property market is in a period of adjustment, in Han Wenxiu’s view, "China’s new urbanization is still advancing, and there is still considerable room for high-quality development of real estate."
An unnamed analyst told 21st century business herald that in the past, real estate was an important force for "maintaining growth", and it will provide power for "steady growth" in the future. This change is an important starting point for the policy adjustment of the property market, and it also means the opening of a new cycle of real estate.
Give each city government autonomy in regulation and control
For the solution to the real estate problem, the "Decision" gives a number of specific measures. Among them, building a housing system with both rent and purchase is reflected in the reports of the 19th National Congress of the Communist Party of China and the 20th National Congress of the Communist Party of China.
Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Urban and Rural Planning Institute, said that for new citizens, young people, migrants and other groups, their living mode is to rent first and then buy, or even rent for a long time. The combination of rent and purchase is not only the basic housing system in China, but also means that there is still much room for development in the rental market and its related public services.
It is another highlight of the Decision to stratify the demand and distinguish the main functions of guarantee and market.
Specifically, affordable housing mainly meets the rigid needs of the working class, while the improved needs are "diversified".
Li Yujia pointed out that affordable housing includes two types: rent-allocation type and allotment type. Previously, the regulatory authorities have made clear the construction, land supply, sources of funds and distribution targets of these two types of housing. Judging from the regulatory authorities’ practice of encouraging all localities to purchase existing commercial housing, in addition to new construction, it is another direction to solve the problem by revitalizing the stock.
Support for diversified needs was also mentioned during the National People’s Congress this year. Li Yujia believes that on the one hand, this is due to the diversification, personalization and differentiation of the demand side (especially the improvement demand); On the other hand, it is also a yardstick to guide supply-side reform.
He said that in the future, whether it is the supply of commercial housing, rental housing or affordable housing, we must do a good job in demand research in order to build and order.
It is worth noting that the aforementioned anonymous analysts also pointed out that allowing farmers to make active use of legally owned houses mentioned in the "Decision" is expected to provide new solutions for improving demand.
Regarding the policy direction of the property market concerned by all parties, the "Decision" emphasizes that "the city governments should be given full autonomy in regulating the real estate market, which is basically consistent with the previous formulation".
"Allowing the relevant cities to cancel or reduce the housing purchase restriction policy and cancel the standards for ordinary houses and non-ordinary houses" provides policy space for further policy optimization. Analysts generally believe that the future direction of the property market policy will continue to be reflected in reducing the cost of buying houses. In addition to the abolition of the standard of ordinary houses, the purchase restriction policy in first-tier cities is also expected to be further liberalized.
The pre-sale system will be gradually reformed.
The Decision also laid the groundwork for the reform of several systems. Analysts generally believe that compared with the complexity of real estate tax system reform, the reform of financing methods and pre-sale system is more realistic and operable.
China’s pre-sale system of commercial housing draws lessons from Hong Kong, which was established in the 1990s and has been revised twice. The pre-sale system endows housing enterprises with certain financing functions, which enables them to achieve leverage development under limited capital scale and help the property market achieve rapid growth in the past.
In recent years, under the policy of deleveraging in the property market, the disadvantages of the pre-sale system have also begun to appear. Since 2021, some cities have stopped work and stopped lending, which has brought the reform of the pre-sale system to a crossroads.
Han Wenxiu also mentioned at the press conference that the next step is to implement the spirit of the Third Plenary Session of the 20th CPC Central Committee, accelerate the construction of a new model of real estate development, and eliminate the disadvantages of the previous model of "high debt, high turnover and high leverage". This includes the reform of financing mode and pre-sale system.
Li Yujia said that the reform of the pre-sale system has certain realistic conditions. On the one hand, according to Kerry statistics, the current sales of houses in key cities have accounted for 30% of the total; On the other hand, since 2023, the sales of auction houses have declined, and the sales of existing houses and second-hand houses have increased, which means that the new feature of market demand is what you see and live immediately.
However, the financing mode of real estate development is highly related to the pre-sale system of commercial housing, and they need to be promoted simultaneously.
Chen Wenjing pointed out that after switching to existing home sales, the use time of enterprise development loans will be extended, how to optimize and adjust the supporting funds of financial institutions, or the research direction of future policies. In addition, before fully promoting the sales of existing homes, some cities may need to further improve the supply-side policies and stabilize supply expectations.
Therefore, in the short term, the reform of the pre-sale system may still be gradual, and it is expected that it will take some time to completely cancel the pre-sale system.
In contrast, the prospect of financing reform is more optimistic. Since the end of last year, the coordination mechanism of urban real estate financing has been established, and financial institutions have promoted the issuance of development loans according to the "white list", which means that the reform of financing methods has made great progress. Analysts also generally believe that this mechanism will become the norm.
In addition, real estate funds including REITs are expected to usher in further breakthroughs at the policy level.