China's real estate policy combination starts to show preliminary effects

Editor's note: Wu Yuzhe is a professor at the School of Public Affairs and the director of the Research Center for Urbanization and Spatial Governance at Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Data reveals that as of April 2024, the area of commercial housing for sale in China reached 746 million square meters, surpassing the historical peak of 739 million square meters from over a decade ago, setting a new record. On April 30, officials at a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee emphasized implementing policy measures to reduce housing stock and improve the quality of newly added housing, to expedite the construction of a new model for real estate development and promote high-quality growth in this sector. On May 17, the People's Bank of China and the National Financial Regulatory Administration jointly released a combination of real estate policy measures. These include establishing a 300-billion-yuan re-lending facilities for government-subsidized housing, lowering minimum down payment ratios for individuals' housing mortgages, removing the lower limit on individuals' mortgage rates, and reducing the loan rates of housing provident funds across all terms by 0.25 percentage point. Since the implementation of these new policies, initial positive effects have been observed in some cities.

The focus of this round of new policies is to reduce housing inventory. The re-lending facilities for government-subsidized housing aim to convert commercial housing stock into government-subsidized housing through the government. In the short term, this helps alleviate tight cash flows facing real estate developers, facilitate healthier capital operations for real estate-related industries and inject new momentum into the macroeconomy. In the long term, it contributes to a more rational housing supply system, helping rural migrant workers settle in the cities and become genuine "new urban residents."

Theoretically, the new policies address both the supply and demand side. By reducing the stock of ordinary commercial housing through re-lending facilities for government-subsidized housing, the market dilemma of oversupply is mitigated, helping stabilize housing market prices and promote a steady recovery. Lowering the minimum down payment ratios for individuals' housing mortgages and reducing individuals' mortgage rates could help reduce the cost of buying a home, thus stimulating effective market demand.

In the early stages of policy implementation, the real estate market began to become more active. The capital market's confidence in the real estate sector has been boosted, with leading real estate companies such as Vanke, Poly, Longfor, China Overseas and Gemdale seeing a rise in stock prices. In the two weeks since the introduction of new policies, the real estate markets in first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen have seen a significant surge in interest. For example, in Hangzhou, Wuhan and Chongqing, three representative cities in east, central and west China, transaction volumes of both new and second-hand housing have risen substantially.  

Admittedly, as the real estate market recovers, regulation must be strengthened to prevent new future risks. For instance, a lower down payment ratio might lead to subprime issues if buyers with insufficient purchasing power or poor credit enter the market. It may also attract speculators to increase leverage, leading to new speculative bubbles. Therefore, it is necessary to introduce transaction profit taxes when appropriate to establish a long-term mechanism to ensure that "housing is for living in, not for speculation." It should also be noted that policies should be further introduced on improving the quality of newly added housing, to foster the development of improved housing as a new growth point for the real estate industry and meeting people's new expectations for quality housing.

(Cover via CFP)