China’s Real Estate Market Faces Attention Ahead of the Third Plenary Session of the Chinese Communist Party, raising speculation about the prospects of real estate recovery in the country. Premier of the Chinese Communist Party, Li Keqiang, chaired a State Council executive meeting yesterday (7th) and once again emphasized the need to “accelerate the construction of a new model for real estate development,” with Hong Kong media pointing out that this expression reflects the long road ahead to stabilize the property market. Some analysts believe that the CCP’s market rescue policies are aimed at saving the government and banks, while neglecting the interests of property buyers.
According to a report from Xinhua News Agency, Premier Li Keqiang chaired a State Council executive meeting on the 7th, emphasizing the need to “focus on promoting the effective implementation of policies and measures already introduced, continue to research and reserve new destocking and market stabilization policy measures,” as well as advancing “work in digesting and revitalizing existing housing properties and land,” and further emphasizing the need to “accelerate the construction of a new model for real estate development.”
The Hong Kong-based newspaper, “Sing Tao Daily,” published a commentary on June 8th titled “Long Road Ahead for Stabilizing the Property Market – Continued Policy Measures Are Necessary.”
The article believes that the announcements made during the State Council meeting reveal that despite the combination of measures to stabilize the property market announced by the authorities on May 17, there is still a need for more ongoing policy stimulation. Li Keqiang reiterated the need to “accelerate the construction of a new model for real estate development,” first mentioned at the Central Economic Work Conference in December last year and reiterated in the March 5th Government Work Report this year, reflecting the long road ahead to stabilize the property market.
Amidst the continued downturn in China’s real estate sector, the CCP authorities introduced a significant market rescue policy on May 17, known as the “5.17” policy. On that day, CCP Vice Premier He Lifeng held a national video conference on ensuring the delivery of housing.
Three major initiatives were rolled out by the authorities. First, the adjustments to the down payment ratio for property purchases. The down payment ratio for first-time homebuyers was set at no less than 15%, and for second-home buyers, the minimum down payment ratio was adjusted to no less than 25%. This marked the first time in over forty years of history of commercial housing in China.
Secondly, the reduction of mortgage rates. This includes lowering the interest rates for provident fund housing loans and abolishing the lower limit on commercial mortgage rates.
The third initiative is for cities with excess inventory of commercial housing where the government can purchase some properties at a reasonable price for use as affordable housing. The CCP’s central bank also established a 300 billion yuan (41.5 billion USD) re-lending facility for state-owned enterprises for affordable housing.
Independent commentator Cai Shengkun expressed on social media on June 7th that the series of real estate rescue policies introduced by the CCP government in May have a clear purpose, which is to save the government and banks, while disregarding the interests of property buyers.
The article points out that for the past few decades, the government has profited greatly by inflating land prices and housing prices through land finance, with almost all loans from banks being related to real estate, totaling over 24 trillion yuan. Loans are secured with houses as collateral, and if the loans are not repaid, foreclosure rates increase, leading to a decrease in property prices and collateral value, requiring additional collateral or cash payments, leading to many households and bankrupt companies closing down.
Cai Shengkun stated that China differs from other countries in that it relies heavily on indirect financing, with a larger number of people borrowing through bank credit intermediaries. If there is a crisis in loan repayment, how could the financial system possibly survive on its own? A real estate crisis would devastate the entire Chinese economy, leaving the financial system in a precarious situation.
Many internet users echoed the sentiments: “The disorderly development of China’s real estate market by the CCP is a planned act of wealth robbery.” “The true value of house prices lies in income. Any stimulus that doesn’t boost people’s income is seeking something impossible and is a rogue behavior.”
“The CCP government takes the lead in real estate policies. If they honor the contract spirit, there wouldn’t be cases of migrant workers demanding wages, illegal demolitions, millions of petitioners, and the current real estate economic crisis…”
“The prosperity of the real estate bubble has burst. The measures taken by the CCP to prevent its collapse lead to soft landing credit risks—disregarding people’s lives. Once again, they chant the despicable slogan: When the country is in trouble, it’s the responsibility of all citizens…”
“Until alternatives for land finance are found, land finance cannot collapse, and the ultimate source of land finance income comes from the income and savings of the country’s property buyers. Therefore, motivating the people to continue buying houses to carry the country’s burden is crucial. Hence, the country’s demands on its people are to actively buy houses and maintain stable property prices, with the people’s desire for high-quality and affordable homes falling outside consideration.”
Regarding the CCP’s introduction of the “three major initiatives” to rescue the market, Mr. Zeng from Yichun, Jiangxi Province, stated that in terms of lowering the down payment ratio, based on current housing prices in Yichun, a 250,000 down payment can buy a new house worth 1.75 million. For second-hand homes, 250,000 can buy a house worth 2 million.
He remarked, “What concept is this? This is providing leverage directly to those who want to buy a house but don’t have enough down payment. Regardless of whether you can handle it or not, they let you board the ship first; capsizing is an issue for after boarding. You can imagine how urgent the government’s efforts to revive the real estate sector are! Residents are encouraged to leverage up to buy houses at all costs.”
The market has shown skepticism towards the market rescue policies announced by the CCP on May 17. According to an analysis by Bloomberg on Chinese developers’ stock index, China’s real estate stocks fell by 3.3% on June 6, accumulating a drop of nearly 21% since mid-May. Among them, R&F Properties experienced the largest decline with a 12% drop, followed by Sunac China Holdings with an 8.4% drop.
The top three sales ranking real estate companies in China – Poly Developments, Vanke, and China Overseas Land & Investment, recently released their performance reports, showing a sales decline of over 30% for all three state-owned enterprises’ real estate companies.