(Year-end Economic Observation) How is the virtuous circle of China's property market after six consecutive years of housing prices?

　　China News Service, Beijing, December 29th. Question: How is the virtuous circle of China's property market after six consecutive years of rising housing prices?

　　China News Agency reporter Pang Wuji

　　In 2021, China's real estate market will experience a turning point.

　　House prices, which have been rising for six consecutive years, have begun to fall this year.

In August, the average price index of second-hand housing in 70 cities announced by the National Bureau of Statistics fell for the first time in more than six years, and the price of new houses also fell for the first time in six years in the following month.

　　In addition, a number of core indicators of the real estate industry have also undergone a turning point.

According to statistics from the Shell Research Institute, since the beginning of this year, the scale of second-hand housing transactions in China has hit a seven-year low; the year-on-year growth rate of new housing sales has narrowed to the lowest since 2015; the growth rate of real estate development investment has dropped to a historical low; the scale of land transactions has also declined significantly .

　　Along with this "full-chain" cooling, the property market has entered the "bottoming" stage.

How will the real estate market achieve a "virtuous circle" in 2022?

Four key issues are worthy of attention.

　　First, the "housing, housing, not speculation" crosses the cycle.

　　China’s real estate industry seems to have reached the “crossroads” seven years ago: one step forward, the property market will continue to adjust, and truly bid farewell to the “golden age”; and one step back is a new round of price increases and destocking cycles.

　　Where will the property market go this time?

In fact, the official has already given the answer-the main tone of "housing and living is not speculation" will run through the development of the property market in the next few years.

In the "14th Five-Year Plan" outline, it is clearly stated that we should adhere to the positioning of "housing and not speculating".

　　China’s Minister of Housing and Urban-Rural Development Wang Menghui recently stated that in the future, he will firmly adhere to the positioning of “houses are for living, not for speculation”, and real estate will not be used as a short-term economic stimulus tool and means to strengthen expectations and guidance. Urban policies promote a virtuous circle and healthy development of the real estate industry.

　　This year, when the property market has experienced unexpected cooling and cyclical changes, the bottom line of this policy has not been shaken. China's determination and strategic determination to regulate the property market are self-evident.

　　Recently, Heilongjiang Province’s policy of “striving for real estate growth with all its strength” was quickly withdrawn within a day after its introduction, which also confirms that local policies cannot break through the bottom line of “housing and not speculating”.

　　Second, real estate companies may bid farewell to the "high debt" development model.

　　Since the beginning of this year, the debt default risks of individual leading real estate companies have emerged.

The "three high model" of "high debt, high leverage, and high turnover" of real estate companies is regarded as the main reason behind it.

　　According to statistics from the Shell Research Institute, the asset-liability ratio of real estate development companies has increased from 74.50% in 2010 to 80.68% in 2020, and the growth rate has far exceeded that of other industries in the past ten years.

　　Li Yujia, the chief researcher of the Guangdong Provincial Housing Policy Research Center, said that in the past, real estate companies relied on increased leverage and "quick turnover" to expand their scale to enter the industry's top rankings, be on the "white list" of financial institutions, and then further leveraged to expand.

But this kind of cycle is like "stepping on a steel wire", relying on the continuous expansion of debt and rising housing prices.

　　Wang Menghui recently clearly pointed out that the "high debt, high leverage, and high turnover" real estate development and operation method is unsustainable.

　　The Shell Research Institute report pointed out that the volatility of the property market in 2021 has broken the superstition that "house prices will not fall" and that real estate companies are "big to fail".

Future real estate companies need disruptive changes.

Among them, it includes the transformation of business models.

　　Third, the real estate tax trial is approaching.

　　Speeding up real estate taxes, which has been delayed for many years.

In October of this year, the 31st meeting of the Standing Committee of the 13th National People's Congress decided to authorize the State Council to carry out real estate tax reform pilot projects in some regions.

　　On December 27, the National Financial Work Conference mentioned the preparations for the real estate tax pilot when it summarized the financial work in 2021.

This means that next year some cities may usher in a five-year real estate tax trial.

　　The Crane Research Center predicts that the core first- and second-tier cities where housing prices have risen too fast in the early stage, or where housing prices have always faced greater upward pressure, and the hotspot cities named and interviewed by the Ministry of Housing and Urban-Rural Development in 2021, are more likely to become pilots.

　　Fourth, housing supply is more diversified.

　　Wang Menghui pointed out that in response to the housing needs of new citizens, young people and other groups, we will increase policy support in finance, land, and public services, vigorously develop affordable rental housing, develop shared property housing in accordance with local conditions, and accelerate the development of the long-term rental housing market.

　　In addition to commercial housing, people have more channels to solve housing problems.

Among them, the development of affordable rental housing is regarded as an important way to stabilize housing rent levels and real estate investment in big cities.

　　The Ministry of Housing and Urban-Rural Development previously stated that in cities with a large number of new citizens and young people, high housing prices or greater pressure to rise, during the "14th Five-Year Plan" period, the proportion of new affordable rental housing to the total new housing supply should reach 30 %above.

　　Information recently released by Beijing shows that through centralized land supply and construction, a total of 25 public rental housing and affordable rental housing plots were sold in the city this year, with a construction scale of 460,000 square meters and approximately 5,700 houses.

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