Real estate market stabilizes, showing clear signs of improvement

Editor's note: This article was written by Wu Yuzhe, a professor at the School of Public Affairs at Zhejiang University and director of the Institute of Land Science and Property at the university. Translated from Chinese, the article reflects the author's opinions and not necessarily the views of CGTN.

In April this year, China's real estate market was grappling with challenges in both transaction volume and prices, with the stock of ordinary commodity housing reaching a new peak. The unsold area hit 746 million square meters, surpassing the previous historical peak of 739 million square meters set over a decade ago. At the same time, second-hand housing prices in the country's first-tier cities (Beijing, Shanghai, Guangzhou, and Shenzhen) fell back to the 2016 levels. 

Against this backdrop, on May 17, the People's Bank of China, the country's central bank, the National Financial Regulatory Administration, and other institutions jointly introduced a series of measures to develop the real estate market. Five months later, on October 17, institutions including the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, and the Ministry of Natural Resources further enhanced measures to promote the stable and healthy development of the real estate market. 

The Political Bureau of the Central Committee of the Communist Party of China held a meeting on September 26, calling for efforts to stabilize the real estate market with an emphasis on strictly controlling new housing supply, optimizing existing stock, and improving the quality of commodity housing construction, and promote the establishment of a new model for real estate development. There are clear signs that China's real estate market is improving.  

In September, real estate companies strengthened their land acquisition efforts. According to the monitoring by E&H Consulting, the total transacted construction area of urban residential land reached 54.065 million square meters, a year-on-year increase of 31.6 percent and a month-on-month rise of 25.9 percent. In some cities, land auctions were active, with premiums exceeding 30 percent. In cities like Guangzhou, Shenzhen, and Chengdu, some bidding went on for more than 100 rounds, and floor prices hit new highs. Since October, real estate transaction volumes have begun to stabilize. 

As shown by data from China Real Estate Information Corp, during the National Day holiday, the purchased area of new housing projects in 23 key cities surged by 77 percent month-on-month and 65 percent year-on-year. In first-tier cities, the year-on-year growth reached a startling 102 percent. At the same time, second-hand housing transactions have been recovering week by week. In the second week of October, the volume of second-hand housing transactions in 14 key cities across China doubled both month-on-month and year-on-year figures. Shenzhen and Hangzhou even recorded the highest weekly transaction volumes this year.

With the introduction of new policies on October 17 that relax real estate market controls, including lifting restrictions on housing purchases, sales, and price caps, as well as eliminating the distinction between ordinary and non-ordinary residential properties, the market is expected to be more dynamic. The relaxation policy will attract new market participants to destock the existing commodity houses. 

In particular, the new policies have also mentioned completing the renovation of an additional 1 million housing units in the urban village and dilapidated housing renovation projects by providing monetary compensation to residents, which will directly contribute to destocking. This will also enable developers to establish a positive cash flow cycle. The elimination of the distinction between ordinary and non-ordinary residential properties offers new thoughts on optimizing the housing supply. 

This suggests that in the future, improved housing of various kinds could become a new growth point for the real estate market. As early as October 17 last year, the Ministry of Natural Resources issued a notice allowing the removal of the restriction that housing projects in urban suburbs must have a floor area ratio of no less than 1.0. Combined with the removal of the distinction between ordinary and non-ordinary residential properties, this measure will help build confidence in establishing a new model for real estate development in China.

Real estate prices are still being adjusted. Housing prices in Beijing, Shanghai, Guangzhou, and Shenzhen have dropped further from their peaks, with declines widening from 24.4 percent, 25.3 percent, 25.0 percent, and 37.2 percent in May to 29.0 percent, 29.2 percent, 29.4 percent, and 39.1 percent in September, respectively. This is essentially a cyclical correction following consumers' overly high expectations for the real estate market in the past. The current bottoming out of prices is laying the foundation for market stabilization and future price increases.