Nomura Securities’ Chief Economist in China, Lu Ting, analyzed the current status of the Chinese real estate market. Lu pointed out that ensuring the implementation of the “guarantee delivery” policy for property developers should take priority over the government’s current inventory destocking policy of buying existing homes. This is because the number of completed but unsold houses is 20 times higher than unsold but sold houses.
On September 28, the highly anticipated Tsinghua Wudaokou Chief Economist Forum was held in Beijing, attracting numerous renowned domestic and international economists and financial industry leaders to discuss the challenges faced by the Chinese economy.
Lu Ting, Chief Economist of Nomura Securities in China, delved into the analysis of the Chinese real estate market. He emphasized that in recent years, the most significant pressure on the Chinese economy has come from the real estate sector. Resolving the clearance issues in the real estate market is crucial for the current economic stability and development. In this regard, the “guarantee delivery” policy should be given top priority, even more so than inventory destocking.
Lu Ting explained that due to the presale system, the Chinese real estate market operates more like a futures market rather than a spot market. This distinction is crucial in understanding the current challenges in the real estate market. Many people tend to view the real estate market as a spot market when proposing policy suggestions, believing the issue lies in excessive construction without sales. However, the reality may differ. It may not be an issue of excessive construction but rather selling too many houses that are yet to be completed.
Lu Ting cited data from Country Garden as evidence, stating that Country Garden has approximately 36,000 completed but unsold houses, 730,000 sold but unfinished houses, and 350,000 under construction but unsold houses. The ratio among these categories is approximately “1:20:10”.
Facing such data, Lu Ting posed a sharp question: Should the policy focus on addressing the “1,” referring to completed but unsold houses, or the “20,” indicating sold but unfinished houses? His answer emphasized the need to prioritize resolving the sold but unfinished houses, placing emphasis on “guarantee delivery.”
During the Central Political Bureau meeting on September 26, it was for the first time mentioned to “promote the stabilization of the real estate market.” Lu Ting mentioned during the speech, “To achieve market clearance and restore confidence are essential steps to stabilize the real estate market.”
Lu Ting pointed out that the main issues currently facing the real estate market stem from market dysfunction and government failures under the presale system. Rebuilding market confidence and order requires addressing the trust issue to assure buyers that they will receive the properties they purchase. Only when buyers see tangible homes can confidence in the real estate market gradually be restored.
To achieve this goal, Lu Ting estimated that a financial injection of over 3 trillion yuan is needed to address the “guarantee delivery” issue. Despite the significant expenditure, Lu Ting believes it is necessary to overcome the current challenges in the real estate market. This funding primarily aims to ensure that the sold but unfinished houses can be completed and delivered to buyers smoothly.
Addressing the debt chain in the real estate market, Lu Ting reiterated the importance of “guarantee delivery.” He stressed that the most critical debt chain in the real estate issue is not between real estate developers and banks but between developers and property buyers. The stability of this chain directly impacts the stability of the real estate market.
“Guarantee delivery” policy, initially proposed as “guarantee delivery of properties,” ensures that properties will be completed and delivered to avoid unfinished buildings. The specific measure is the implementation of the real estate “white list” mechanism initiated earlier this year, enabling commercial banks to support projects listed on the white list. On April 30, the term “guarantee delivery” was first mentioned during a Central Political Bureau meeting.
According to a report from Bloomberg Intelligence, based on presale data from 2015 to the first half of this year, at least 48 million presold properties in China remain unfinished, indicating that the real estate crisis in China is unlikely to be resolved soon.