Real estate sector, can you buy it or not?
The real estate sector of Hong Kong stocks plummeted today. As of today's close, whether it was state-owned real estate companies such as China Overseas (00688) or private real estate companies such as Sunac (01918) and Vanke (02202), stock prices had basically fallen back to the intraday price of September 30, or even before September 30.
It is tantamount to saying that all of the emotional gains during the 11th Golden Week have returned. This is not very friendly to Hong Kong stock investors who increased their holdings in the domestic housing sector during the 11th Golden Week.
It coincided with a press conference held by the Information Office of the State Council at 10 a.m. this morning. The content involved was related to real estate. The sharp decline in the market seemed very unflattering, but one question was put to investors, and that is:
Is the current real estate sector worth buying?
Regarding the Chinese real estate market, the author's opinion is that it is better to look at things over time. In other words, judging from the intensive introduction of policies and some changes visible to the naked eye, the entire real estate industry should be able to confirm its bottom in the short term, while the medium to long term has the conditions to reverse. However, from the perspective of stock prices, it is difficult to sustain short-term increases without fundamental support, but once medium- to long-term fundamental reversals are confirmed, stock prices will also reverse.
1. Underpinning the policy shows determination to ensure “stopping the decline and stabilizing”
Up to now, the political bureau of the Party Central Committee, the central government and relevant departments have taken joint actions to issue various financial institutions, real estate companies, and specific projects, either making clear statements or taking practical actions to ensure that housing prices stop falling and stabilize. It can be seen that at the level of policy support, full horsepower has been used, and the policy toolbox has been maximized.
On September 26, the Politburo meeting of the Central Committee emphasized the need to promote the real estate market to stop falling and stabilize, strictly control growth, optimize stocks, and improve quality. It is necessary to respond to public concerns, urgently improve land, fiscal, financial and other policies, and promote the construction of a new model for real estate development. On September 29, the State Council held an executive meeting to study and deploy specific implementation work.
At this press conference, Minister of Housing and Construction Ni Hong said that they will work with departments such as the Ministry of Finance, the Ministry of Natural Resources, the People's Bank of China, and the General Administration of Financial Supervision to guide all regions to act quickly, implement inventory policies, introduce incremental policies, and play a “combo punch” to push the market to stop falling and stabilize through four cancellations, four reductions, and two increases.
Ni Hong said that since the release of the relevant policy, the effects of the policy have begun to show. The decline in major indicators such as real estate development investment and sales of newly built commercial housing has continued to narrow. In particular, since the end of September, the number of first-hand housing viewings, visits, and contracts have increased markedly. The volume of second-hand housing transactions has continued to rise, and there have been positive changes in the market.
According to media reports, real estate policy support has been strengthened in many places, and the property market in first-tier cities is picking up across the board. In the next step, we will work with relevant departments to resolutely implement the decisions and arrangements of the Party Central Committee and the State Council, and implement them one by one to fully unleash the effects of the policies and benefit the masses even more.
2. Increase investment in whitelist loans
According to the author, the whitelist loan system introduced this time can be similar to US Treasury Secretary Paulson's unlimited loan system during the 2008 US financial tsunami. Paulson famously said that if you promise unlimited liquidity, then you actually don't need to provide liquidity anymore. Because the liquidity crisis is essentially a crisis of confidence, once the crisis of confidence is lifted, there can be no shortage of liquidity.
Another famous quote from Paulson is: if you have a water gun, you have to hold it in your hand and use it often. But if you have a nuclear bomb, then don't take it out.
The current whitelist loan system follows a similar concept. Furthermore, we are watching Xiao Yuan, Deputy Director of the Financial Supervisory Authority, about the “white list” statement at today's press conference, and we can also understand the real value of its “unlimited liquidity.” At this press conference, the programmatic statement about the whitelist was three sentences, or three “must meet”:
First, it is necessary to include all loans for commercial housing projects in the “white list” so that “every effort should be made.”
Second, it is a project that has entered the “white list”, and commercial banks must “fully fund their loans.”
Third, it is to optimize how loan funds are disbursed to achieve “as early as possible.”
According to the press conference, as of October 16, the “white list” real estate project had been approved for loans amounting to 2.23 trillion yuan. It is expected that by the end of 2024, the amount approved for loans approved for “white list” projects will double to more than 4 trillion yuan. In order to do a good job in financing real estate projects and guarantee the completion and delivery of housing, it will also further optimize and improve the financing mechanism for real estate “white list” projects, so that qualified projects “should be fully advanced”, approved loans “should be fully loaned”, and funds “can be disbursed as soon as possible”.
The white list system, if put to good use, would undoubtedly be an emergency blood transfusion for the real estate industry. The negative effects of the previous excessive rigidity of implementation of the “three red lines” can be greatly corrected. As the liquidity crisis in the real estate industry gradually eases, the entire sector will reverse to the bottom.
3 Local special bonds are used for land storage and the purchase of stock houses
In addition, the two policies that investors are more concerned about using special bonds to support land reserves and purchasing existing housing for affordable housing were also discussed in more detail at this press conference.
Minister of Housing and Construction Ni Hong said that these two policies are not only important measures to stop falling and stabilize the real estate market, but also important elements in implementing the decisions and arrangements of the Third Plenary Session of the 20th CPC Central Committee, expanding the scope of special debt support and use as project capital. They are conducive to promoting the balance between supply and demand in the land market, relieving the liquidity and debt pressure of local governments and real estate enterprises, as well as increasing sources of affordable housing and improving people's livelihood and welfare.
In terms of specific operations, with regard to the use of special bonds for land reserves, it mainly supports all regions to reasonably determine the purchase price with owners and enterprises with existing land stocks, properly handle debt-debt relationships involving the recycling of existing land, reasonably determine the content and scope of the special bond project, arrange bond issuance and expenditure in a timely manner, and improve the efficiency of the utilization of land resources and the efficiency of the use of bond funds.
Regarding supporting local authorities to make good use of special bonds to buy existing commercial housing for affordable housing, this policy is mainly based on local decisions and voluntary implementation. It follows the principle of legalization, and operates in accordance with market-based operations. On the basis of ensuring the balance of project financing benefits, local authorities can arrange for special bonds to buy existing commercial housing for use as affordable housing. This policy will work in concert with other relevant support policies to further broaden local funding channels. It can not only effectively absorb stocks and promote balance between supply and demand, but also help optimize growth and raise affordable housing through multiple channels.
4 Summary
Overall, since the September 26 Politburo meeting proposed an overall program to “stop falling and stabilize housing prices,” up to now, more and more detailed measures and follow-up support policies have been gradually introduced to ensure that the real estate market reverses at the bottom.
The recent decline in the stock market, especially in the Hong Kong stock real estate sector, is a correction that previously rose too fast and irrationally grabbed funds, which went beyond the scope of fundamentals. This does not mean that the real estate sector market has come to an end. The author believes that with the subsequent implementation of policy expectations and the introduction of new policies, the restoration of the fundamentals of the real estate sector will eventually be reflected in the stock market. In a large country with a population of 1.4 billion, the real estate market is unlikely to completely collapse. After experiencing suffering and transformation, it will eventually stabilize and far-reaching.
Attachment: Summary of the key points of the press conference of the State Information Office
The Information Office of the State Council held a press conference at 10 a.m. this morning to introduce the situation relating to promoting the steady and healthy development of the real estate market and answer questions from reporters. Leaders attending the press conference include Ni Hong, Minister of Housing, Urban-Rural Development, and heads of the Ministry of Finance, the Ministry of Natural Resources, the People's Bank of China, and the State Financial Supervision and Administration.
Minister of Housing and Construction Ni Hong said at the press conference of the State Information Office on October 17 that 1 million additional urban village renovation and dilapidated housing will be implemented through monetized housing resettlement methods. According to the survey, in 35 large and medium-sized cities alone, there are 1.7 million urban villages in need of renovation, while other cities are also in need of renovation; there are 500,000 dilapidated houses in need of renovation nationwide. The proposed implementation of 1 million new packages is mainly aimed at projects where conditions are ripe and can be carried out early by strengthening policies. Mainly using monetary settlement methods, it will be more beneficial for the public and their own wishes to choose the appropriate method.
(1) The Ministry of Housing and Construction, together with the four ministries and commissions, played a “combo punch” to push the market to stop falling and stabilize
Minister of Housing and Construction Ni Hong said that the Party Central Committee attaches great importance to the steady and healthy development of the real estate market. On September 26, the Politburo meeting of the Central Committee emphasized the need to promote the real estate market to stop falling and stabilize, strictly control growth, optimize stocks, and improve quality. It is necessary to respond to public concerns, urgently improve land, fiscal, financial and other policies, and promote the construction of a new model for real estate development. On September 29, the State Council held an executive meeting to study and deploy specific implementation work.
The Ministry of Housing and Construction, together with departments such as the Ministry of Finance, the Ministry of Natural Resources, the People's Bank of China, and the General Administration of Financial Supervision, guides all regions to act quickly to seize the implementation of stock policies, introduce incremental policies, and play a “combo punch” to push the market to stop falling and stabilize.
The so-called “combo punch” is summed up as follows: four cancellations, four reductions, and two increases.
The four cancellations give the city government full autonomy in regulation and control. The city government adjusts or abolishes all kinds of restrictive measures on housing purchases in accordance with city policies. It mainly includes lifting purchase restrictions, removing sales restrictions, removing price limits, and abolishing standards for ordinary housing and non-ordinary housing.
The four reductions are lower interest rates on housing provident fund loans. Everyone knows that the down payment ratio for housing loans has been reduced by 0.25 percentage points; the minimum down payment ratio for one and two home loans has been reduced to 15%; interest rates on stock loans have been reduced; and the tax burden of “selling old and buying new” housing in exchange for housing has been reduced. By implementing these policies that have already been put in place, residents' housing purchase costs will be reduced, pressure on loan repayment will be reduced, and residents' demand for rigid and improved housing will be supported.
Two increases. One is the implementation of an additional 1 million urban village renovation and dilapidated housing renovation through monetized resettlement and other methods. There are many safety hazards and poor living conditions in urban villages, and the public's desire to reform is urgent. Second, by the end of the year, the credit scale of the “white list” project will be increased to 4 trillion dollars. The urban real estate financing coordination mechanism should seek to include all qualified real estate projects on the “white list”, and should make every effort to meet the reasonable financing needs of the project.
(2) How effective has the policy been so far?
Minister of Housing and Construction Ni Hong said that since the relevant policy was released, the effects of the policy have begun to show. The decline in major indicators such as real estate development investment and sales of newly built commercial housing has continued to narrow. In particular, since the end of September, the number of first-hand housing visits, visits, and contracts have increased markedly. The volume of second-hand housing transactions has continued to rise, and there have been positive changes in the market.
According to media reports, real estate policy support has been strengthened in many places, and the property market in first-tier cities is picking up across the board. In the next step, we will work with relevant departments to resolutely implement the decisions and arrangements of the Party Central Committee and the State Council, and implement them one by one to fully unleash the effects of the policies and benefit the masses even more.
(3) How does the General Financial Supervisory Authority promote “white list” project loan investment?
Xiao Yuanqi, deputy director of the General Administration of Financial Regulation, said that the main aspects of increasing loan investment for “white list” projects are:
First, all loans for commercial housing projects should be included in the “white list” so that “every effort should be made.” The “white list” and the city financing coordination mechanism have been established for more than half a year. Through the efforts of all parties, there are now good experiences and practices. A series of relatively complete systems have been explored in terms of government coordination and promotion, financial financing support, and judicial enforcement guarantees. After being included in the “white list”, the management of real estate projects was more standardized, and financing was more convenient and fast. It played a very important role in the completion and delivery of projects and in protecting the legitimate rights and interests of buyers.
The specific process takes two forms: review and filing. In terms of review, according to the current urban financing coordination mechanism, the “white list” project process continues to play a role and continue to be maintained. At the same time, real estate project companies can also discuss with banks. Banks can finance real estate projects in accordance with credit granting standards, file records through the “white list” mechanism, and include them in “white list” management. After being included in the “white list”, project management is more standardized, and financing is faster and more convenient, which is beneficial to housing construction and to protecting the legitimate rights and interests of all parties.
The second is a project to enter the “white list”. Commercial banks must “fully fund their loans.” We have guided banks to further step up efforts to implement the loan investment schedule on a project-by-project basis, moderately delegate approval authority, improve approval and loan efficiency, and issue loans in a timely manner according to the progress of project construction. Each city's coordination mechanism should also actively coordinate with all relevant parties, step up efforts to repair problematic projects, implement loan issuance conditions, and cooperate with financial institutions to review and issue loans. In principle, if the relevant conditions and requirements have not changed, banks should “run out of debt” for projects entered into the “white list”.
The third is to optimize how loan funds are disbursed to achieve “as early as possible.” Currently, commercial banks disburse loan funds to real estate project companies in batches according to project construction progress, and are directly entrusted to upstream and downstream enterprises such as material vendors and construction parties. In the future, under the premise of coordination with the real estate project company, commercial banks can distribute all loans in advance to the project fund supervision account set up by the real estate project company, and then advance the time for disbursing the funds according to the actual usage application, from the supervisory account trustee payment to the user target. As long as the credit approval is approved, all loans can be issued to the real estate project company's fund supervision account.
The advantage of this is that loan funds can be quickly and early distributed to the accounts of real estate “white list” project companies, and money can be paid to upstream and downstream companies early. At the same time, since these loan funds go into the real estate project company's project fund supervision account, earmarked funds, and closed management, they will not be misused by the project company. The loan funds are used to build this project and its supporting facilities, and all of them will be used to complete and deliver the project, which is beneficial to protecting the legitimate rights and interests of buyers.
According to statistics, as of October 16, “white list” real estate projects had been approved for loans amounting to 2.23 trillion yuan. It is expected that by the end of 2024, the amount approved for loans approved for “white list” projects will double to more than 4 trillion yuan. In order to do a good job in financing real estate projects and guarantee housing completion and delivery, we will also further optimize and improve the financing mechanism for real estate “white list” projects, so that qualified projects “should make every effort”, approved loans “should be fully loaned”, and funds “can be disbursed as soon as possible”.
(4) Will the relaxation of purchase restrictions in big cities have a siphoning effect on small and medium-sized cities?
Regarding housing purchase restrictions. Since last year, each city has been given full autonomy in real estate regulation and control, and the city government will make independent decisions based on the city's economic and social development and the current state of real estate. The four first-tier cities adjusted their housing purchase restrictions at the end of September, which is not exactly the same. Beijing and Shanghai “relaxed the conditions for purchase restrictions,” Guangzhou “completely cancelled,” and Shenzhen “cancelled some regions.” This fully reflects each city's city-specific policies, independent decisions, and one-city-one policies.
About the “siphon effect.” From a regular point of view, the “siphon effect” is a common phenomenon in the development of cities around the world. In terms of impact, the “siphon effect” has advantages and disadvantages. At different stages of development in different cities and cities, the “siphon effect” will have different effects. In the process of urbanization, the Chinese Government focuses on guiding the coordinated development of large, medium, and small towns. The real estate market's policy is also an institutional arrangement to prevent the negative effects of the “siphon effect” in the real estate sector. Thank you.
(5) How to arrange the renovation of 1 million urban villages and dilapidated urban housing units?
Ni Hong: As the city develops, new houses will become old houses, and some old houses will become dilapidated houses. This kind of demand exists. We have done statistics on key cities. 35 major cities have a demand for 1.7 million units, and there are 297 prefecture-level cities across the country. As you can imagine, this demand is real, and there will be even greater demand.
This time, we chose to add 1 million more units on the basis of the early renovation of urban villages and dilapidated houses, and increase policy support through monetization, mainly considering that the conditions for some projects are relatively mature, the public's desire for renovation is also quite urgent, and the early work has been done quite steadily. The beneficial aspect is, first of all, for the masses. Monetized placement can better meet the requirements of the masses to independently choose the type and location of the room. Second, you can move directly into a new home. Unlike before, you had to wait ten months for a transition period of ten months to build a resettlement house. Third, for cities, it can eliminate potential safety hazards, improve the living environment, and improve urban functions. Fourth, in the current situation where there are major changes in the real estate supply and demand relationship, it is also beneficial to absorb the stock of commercial housing. Get more in one fell swoop.
What kind of projects can receive policy attention and support? There are the following two points. First, first of all, this project must be a project where the public's will to reform is strong and the safety hazards are quite prominent. Second, the two plans for the project should be relatively mature. One is that the expropriation and resettlement plan must be solid, which can ensure the smooth progress of the expropriation work and effectively protect the legitimate rights and interests of the public; the other is that the capital balance plan can achieve the overall balance of the project and avoid the risk of additional local debt.
What are the main policies? There are the following five articles. The first is to focus on supporting cities above prefectural level. Second, development and policy financial institutions can grant special loans. Third, local authorities are allowed to issue special government bonds. Fourth, tax concessions are granted. Fifth, commercial banks can also issue commercial loans based on project evaluations.
With the support of these five policies, all regions can also combine urban renewal to further plan and select projects with mature conditions and implement them early. As long as the preliminary work is done well, we can continue to increase our support on the basis of 1 million units.
(6) What are the detailed measures and considerations regarding the policy of special debt to support land reserves and the acquisition of existing housing for affordable housing?
These two policies focus on the blockages in the real estate market. They are not only important measures to stop falling and stabilize the real estate market, but also important elements in implementing the decisions and arrangements of the Third Plenary Session of the 20th CPC Central Committee, expanding the scope of special debt support and use as project capital. They help promote the balance between supply and demand in the land market, ease the liquidity and debt pressure of local governments and real estate enterprises, and also help increase sources of affordable housing and enhance people's livelihood and welfare.
In terms of specific operations, with regard to the use of special bonds for land reserves, it mainly supports all regions to reasonably determine the purchase price with owners and enterprises with existing land stocks, properly handle debt-debt relationships involving the recycling of existing land, reasonably determine the content and scope of the special bond project, arrange bond issuance and expenditure in a timely manner, and improve the efficiency of the utilization of land resources and the efficiency of the use of bond funds.
Regarding supporting local authorities to make good use of special bonds to buy existing commercial housing for affordable housing, this policy is mainly based on local decisions and voluntary implementation. It follows the principle of legalization, and operates in accordance with market-based operations. On the basis of ensuring the balance of project financing benefits, local authorities can arrange for special bonds to buy existing commercial housing for use as affordable housing. This policy will work in concert with other relevant support policies to further broaden local funding channels. It can not only effectively absorb stocks and promote balance between supply and demand, but also help optimize growth and raise affordable housing through multiple channels.
(7) How to help new citizens and young people solve their housing problems?
Ni Hong: Regarding solving the housing problems of the masses, the national policy is to focus on security and on the market. The government takes the lead in safeguarding the basic housing needs of the masses and meeting the diverse and improved housing needs of the masses through the market.
There are two types of guarantee, one is a rental method and the other is a purchase method. Regarding rental methods, for new citizens and young people, we will vigorously develop affordable rental housing and public rental housing, using methods such as “one bed, one room, one suite”, etc., so that new citizens and young people can enter, stay safe, and start a business. Governments at all levels attach great importance to urban low-income families with housing difficulties and have implemented public rental housing guarantees. Low-income families with housing difficulties have basically been fully covered. There are also two ways to guarantee public rental housing. One is physical rental, and the other is a monetized subsidy.
Regarding the method of purchase, it is for those who have a certain financial ability. Although it is still difficult to buy commercial housing for the time being, it is possible to buy affordable housing. Mainly because it needs to be built and ordered. There are also two ways to raise housing. One is to build a new one, and the other is to buy eligible commercial housing for use as guaranteed housing. In our work, we have also taken into account new changes in the situation. In order to meet the needs of families with two or more children, we require and support local authorities to moderately increase the area of affordable housing in line with reality.
It should be emphasized here that while optimizing and improving real estate policies in line with local realities, city governments must increase security and secure the bottom line of housing security. I'm also reporting data to you. From January to September of this year, we have already built and raised 1.48 million affordable housing units (units), and by the end of the year, 4.5 million new citizens and young people will be able to live in affordable housing.