**Chinese Communist Party Accelerates Reform in Real Estate Market**
The Chinese Communist Party passed a decision during the Third Plenary Session of the 20th Central Committee, aiming to expedite the establishment of a new model for real estate development, including measures such as lifting housing purchase restrictions and promoting a balanced approach to renting and buying. However, experts believe that while the CCP is trying to patch up its real estate policies, the overarching trend in the mainland is a comprehensive collapse of the real estate market and an ongoing systemic financial breakdown.
The decision emphasizes the acceleration of constructing a new model for real estate development, granting full autonomy to city governments in housing market regulation, allowing tailored policies based on local conditions, and permitting cities to cancel or reduce housing purchase limitations.
Furthermore, the decision highlights the establishment of a housing system that supports both renting and purchasing, increasing the construction and supply of affordable housing to meet the rigid housing needs of the working class.
Economist Li Hengqing expressed doubts regarding the effectiveness of the CCP’s proposed measures, stating that the current policies issued by the central government will not be sufficient to address the deep-rooted crisis in the Chinese real estate market. Li pointed out that the oversupply of housing coupled with a shrinking population in China pose significant challenges, making it difficult for mere policy adjustments to alter the current state of the real estate sector.
Despite the CCP’s continuous efforts to stabilize the real estate market, recent policies implemented on May 17, including substantial reductions in down payment ratios and interest rates for housing loans, have failed to halt the market’s downward spiral, with the demand showing persistent weakness.
According to a report by HSBC Global Research, a key indicator for future real estate investment – the area of newly constructed residential buildings – has decreased by 21% year-on-year, signaling sustained soft demand in the industry.
Regarding the decision during the Third Plenary Session to cancel or reduce housing purchase restrictions, Li Hengqing mentioned that in reality, there are hardly any cities left with such restrictions. Cities like Shanghai and Beijing have minimal limitations, with many regions actively encouraging property purchases by offering governmental subsidies and significant price reductions to attract buyers.
Li highlighted the current challenges in the housing market, where even incentives like providing household registrations in exchange for property purchases in cities like Hangzhou have failed to stimulate sales, indicating the ineffectiveness of these strategies.
The latest data reveals that prices of existing homes in a hundred Chinese cities have been consistently declining for 26 consecutive months, with over 90 cities experiencing decreases for 13 consecutive months.
Reports from mainland China mention staggering drops in property prices, such as those in Jiurong in Nanjing, where prices have plummeted from 13,000 yuan per square meter to 3000 yuan per square meter, with units remaining unsold.
The emphasis in the Third Plenary Session decision on a housing system that includes both renting and purchasing is considered a crucial step toward a so-called “new mode of real estate development” by the CCP.
Li criticized these measures as being merely superficial, stating that the concept of purchasing traditionally revolves around consumerism and investment, whereas the current market conditions reflect a disconnect between property prices and actual demand, deterring potential buyers.
He questioned the feasibility of solely promoting renting without addressing the underlying issues of property ownership and affordability, highlighting that without addressing the fundamental economic challenges, the proposed solutions are unlikely to yield substantial results.
On July 11, data released by the China Real Estate Top Institute revealed that the total number of completed residential units delivered by the top ten real estate firms in the country had declined by 33% in the first six months of the year. Additionally, the threshold for the top ten developers in the first half of 2024 decreased by 23,000 units compared to the same period last year, reaching 32,000 units.
In response to the massive inventory of vacant properties, the authorities announced in May plans to support local state-owned enterprises in acquiring real estate; however, the progress in implementation has been sluggish. A report in the **China Real Estate News** published on July 19 indicated that various cities faced differing challenges and delays in executing the property acquisition plans.
Li emphasized that compelling large state-owned enterprises and banks to purchase properties requires certain prerequisites, such as strong financial performance and sustainable profitability. He warned that while these actions may provide temporary solutions, they do not offer a lasting fix to the underlying issues in the real estate market.
The real estate industry’s significant contribution of over 25% to China’s GDP highlights the critical juncture the industry is facing, with the current crisis putting immense pressure on the banking system. Reports from the Australian think tank, the Lowy Institute, indicate that real estate properties now account for 30% of outstanding bank loans, and household leverage has doubled over the past decade, reaching 60% of GDP.
Li predicted a continued downward trend in the Chinese real estate industry, with far-reaching implications for the 47 associated industries and financial institutions. Highlighting the extensive interlinkages between the real estate market and financial institutions, Li cautioned that the impending collapse could potentially lead to the closure of over 90% of the country’s 4,000 banks, severely impacting the government’s creditworthiness.
He warned of the imminent systemic financial breakdown, attributing it to the liquidity trap caused by extensive investments tied up in the real estate sector, leading to a cascading effect of defaults and financial insolvencies.
In conclusion, Li stressed the urgent need for comprehensive reforms to address the underlying structural issues in the real estate sector and mitigate the widespread impact on the broader economy and financial system.