The mainland real estate market continues to struggle, prompting over 30 cities to introduce housing “swap old for new” policies to stimulate transactions in new and second-hand homes. Local residents view this as the most shameless method to reduce inventory. Both experts and the public hold a pessimistic view towards this policy.
To reduce inventory, local governments across China have tried various measures. From relaxing home purchase restrictions to lowering mortgage interest rates, from providing home buying subsidies to implementing housing vouchers, almost all possible means of property market regulation have been exhausted but have yet to yield results.
In the first quarter of this year, national real estate development investment decreased by 9.5% year-on-year, with residential investment dropping by 10.5%. By the end of March, the area of unsold commercial housing had increased by 15.6% year-on-year, including a 23.9% increase in unsold residential areas.
Recently, more than 10 cities including Zhengzhou and Shenzhen have successively launched housing “swap old for new” policies. Zhengzhou plans to complete the exchange of 10,000 units through “selling old for new and swapping old for new” across the city. Jiangsu Hai’an also announced that they would implement the exchange of 100 existing homes for new ones within the year.
On April 17th, the “Greenview Baishizhou” project in Shenzhen initiated the “swap old for new” policy. Located in a prime area of Shenzhen, “Greenview Baishizhou” is one of the projects redeveloped from a “village within the city” a few years ago.
According to the monitoring of China Index Research Institute, over 30 cities have shown support for “swap old for new” policies, mainly through two approaches: real estate companies prioritizing the sale of old homes with brokerage firms, or developers or state-owned platforms acquiring old homes and using the sales revenue to purchase specified new projects. In recent times, cities explicitly mentioning the second approach, i.e., “state-owned acquisitions,” have increased.
Local residents in China believe that in simpler terms, the first approach prioritizes the sale of old homes to residents, while the second approach involves exchanging old homes with a price difference for designated new properties, with the latter being the primary method.
On April 23rd, the financial self-media outlet “10,000 Horsepower Economics” mentioned that stabilizing the real estate market is crucial for stabilizing the overall economy. However, the implementation of the new-for-old housing policy faces many obstacles: determining the pricing of old homes, balancing the speed of selling homes and maintaining their value, ensuring the source of funds for state-owned acquisitions, and effectively utilizing the old homes purchased.
Regarding developers or state-owned platforms acquiring old homes, “10,000 Horsepower Economics” stated that the designated state-owned institutions need substantial financial strength to convert the dispersed acquisitions of second-hand homes into affordable housing, and manage daily operations effectively, presenting various challenges.
Li Bo Tao, the General Manager of Zhongzhi Research Institute Henan Company, expressed that the current downward pressure on the real estate industry in the region has not eased. Coupled with the overall lack of motivation for homeownership and the prevalent mentality of “buying high and not buying low,” the waiting attitude of potential buyers, aggravated by the pressure of existing homes, continues to affect the second-hand housing market.
Chief Analyst of China Real Estate, Zhang Dawei, also holds a pessimistic view of this policy. He believes that the essence of the old-for-new housing model is essentially replacing “unsold second-hand homes” with “unsold new homes,” effectively exchanging one problem for another.
Since 2023, the number of listed second-hand homes in China has been on the rise. As of March 30th this year, six cities including Chongqing, Chengdu, Tianjin, Suzhou, Nanjing, and Hangzhou have surpassed 150,000 listings, with Chongqing and Chengdu exceeding 220,000 listings.
The popular self-media influencer with over 100,000 followers, “Investment with Humor,” recently expressed surprise at the concept of swapping old homes for new ones. They labeled it as the most shameless way to reduce inventory of new homes.
They mentioned that new homes are already challenging to sell, let alone old homes (second-hand homes). The prices of second-hand homes keep dropping, making it difficult to stabilize their value. If second-hand homes are already in such a predicament, how can new homes be expected to sell well?
Beijing Jinsu Law Firm Director Wang Yuchen reminded that the “swap old for new” process essentially merges the transactions of two properties, making it more complex with various considerations and potential complications.
In Wuxi’s Liangxi District, where the exchange of old homes for new ones is being piloted, homeowner Mr. Cheng recently inquired about the details of the program and found several aspects particularly striking.
“Firstly, the property rights of the old house need to be clear, including paying off the mortgage for the old property, settling land transfer fees for the relocation property, etc. Secondly, some of the new property projects are not yet delivered, and transitional arrangements need to be considered. Additionally, the old house’s maximum deduction is 60%, estimated by a third-party institution. Whether this can meet the expected value compared to a self-sale is uncertain.” Mr. Cheng explained to Xinxin Finance.
Lawyer Wang Yuchen emphasized that for buyers to successfully complete a purchase, they must thoroughly understand the policy, assess if they meet the requirements, choose properties cautiously, and carefully review the contract.
“In the design of related procedures, investigation and verification of the old house’s situation need to be conducted, such as property certificates and whether the house has been leased or not. It’s also essential to confirm if there are any trading restrictions commitments for the replacement property. Additionally, individual homeowners involved in the property exchange should verify basic information like credit history,” Wang Yuchen added.