Jury Is Still Out on Impact of Eased Real Estate Financing Restrictions(AI Translation)
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文｜财新周刊 丁锋 刘冉
By Caixin Weekly’s Ding Feng and Liu Ran
美国财长耶伦在2024年4月初访华后透露，中国将采取“重大举措”解决房地产问题；一个半月后，这些“重大举措”终于揭开面纱。
In early April 2024, after U.S. Treasury Secretary Janet Yellen visited China, she revealed that China would take "significant measures" to address its real estate issues. A month and a half later, these "significant measures" have finally been unveiled.
2024年5月17日，中国人民银行、住房和城乡建设部（下称“住建部”）、自然资源部和国家金融监督管理总局（下称“金监总局”），联合向市场接连打出一系列房地产松绑“组合拳”，意在从供需两端同时发力稳定房地产市场。
On May 17, 2024, the People's Bank of China, the Ministry of Housing and Urban-Rural Development (hereinafter referred to as "MOHURD"), the Ministry of Natural Resources, and the National Financial Regulatory Administration (hereinafter referred to as "NFRA") jointly introduced a series of real estate easing measures aimed at stabilizing the real estate market by simultaneously addressing both supply and demand sides.
这一被市场称为“5·17新政”的政策组合可以归纳为四方面：一是降低个人房贷首付比例、取消房贷利率下限、下调公积金贷款利率，以进一步激活个人购房需求，主要由中国人民银行负责。
This policy package, dubbed the "May 17 New Regulation" by the market, can be summarized into four main aspects: first, reducing the down payment ratio for personal housing loans, eliminating the lower limit of mortgage interest rates, and lowering the interest rate on housing provident fund loans to further stimulate individual home buying demand, primarily overseen by the People's Bank of China.
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- In April 2024, U.S. Treasury Secretary Janet Yellen's visit preceded China’s announcement of real estate easing measures on May 17, 2024.
- The "May 17 New Regulation" focuses on reducing down payments, handling idle land, acquiring unsold housing for affordable use, and supporting project construction and delivery.
- By end-April 2024, China's real estate sector showed significant declines: investment dropped by 10.5% year-on-year, and property prices had fallen for consecutive months; measures aim to address these downturns.
In early April 2024, following U.S. Treasury Secretary Janet Yellen's visit to China, China announced plans to address its real estate sector. On May 17, 2024, a comprehensive set of real estate policies was rolled out by the People's Bank of China, the Ministry of Housing and Urban-Rural Development (MOHURD), the Ministry of Natural Resources, and the National Financial Regulatory Administration (NFRA) [para. 1].
The new regulations, known as the "May 17 New Regulation," aim to stabilize the real estate market. Four key aspects define these regulations: reducing down payment ratios and mortgage interest rates to stimulate home buying demand; handling idle residential land through repossession or acquisition; converting unsold commercial housing to affordable housing with RMB 300 billion in affordable housing re-lending for local governments; and supporting the completion of unfinished projects through a "whitelist" mechanism [para. 2][para. 3].
China's real estate sector has been struggling, with significant drops in investment and property prices throughout early 2024. For instance, real estate investment fell by 10.5% year-on-year in April 2024 [para. 4]. The new policies hope to mitigate this downturn by reducing the housing burden on residents, enhancing financing for ongoing projects, and encouraging real estate companies to cut debt [para. 5].
Guojin Securities' Chief Economist Zhao Wei highlighted "blockages" in residential purchases, developer financing, and housing inventory as major hurdles. The new policies are designed to tackle these challenges and encourage local governments to reclaim idle land and purchase unsold commercial housing for affordable housing [para. 6].
Industry experts believe the policy implementation's success will vary based on local government negotiations, developers' strategies, and public acceptance of affordable housing. Rules for the allocation and rental of affordable housing are being finalized, with local governments expected to adopt city-specific policies [para. 7][para. 8].
A report from GF Securities indicated the new policy's shift towards integrating "de-stocking" with "stabilizing demand," recognizing high inventory levels as a significant problem. While previous policy relaxations proved ineffective, the current cycle requires more nuanced approaches [para. 9]. Policymakers are cautiously observing existing measures before implementing a national property acquisition platform, keeping primary responsibility for market stabilization with local governments [para. 10].
Reductions in minimum down payment ratios and mortgage interest rates have been quickly adopted by various regions. As of late May, over 20 regions, including major cities like Shanghai, Guangzhou, and Shenzhen, announced new housing loan policies. These changes aim to stimulate housing demand and stabilize the real estate market [para. 11].
However, skepticism remains about residents' willingness to increase leverage amid a declining housing market. Experts suggest that expectations for housing prices and income will largely influence this willingness. Boosting confidence in the market is seen as essential for the policies' effectiveness [para. 12].
Ensuring property delivery is a priority. Policies were strengthened to support the financing and completion of ongoing projects, with commercial banks guided to support "whitelist" projects. As of May 16, 2024, the coordination mechanism's approved loan amount reached 935 billion yuan [para. 13]. Yet, not all problematic projects meet "whitelist" criteria, posing challenges that require further regulatory adjustments [para. 14].
The policy of acquiring unsold housing stock to convert it to affordable housing has gained attention. A 300 billion yuan re-lending initiative aims to assist local enterprises in buying unsold properties for affordable housing. This policy is expected to promote a balanced housing market [para. 15][para. 16].
Finally, the effectiveness of policy implementation will depend on negotiations between local governments and enterprises, financial conditions of real estate companies, and public acceptance of affordable housing [para. 17]. Industry experts emphasize the need for flexible mechanisms and continued fiscal support to achieve meaningful results [para. 18]. In summary, China's new real estate policies are designed to tackle deep-rooted problems in the sector, leveraging monetary tools and local government initiatives to stabilize and invigorate the market.
- Guojin Securities
国金证券 - Guojin Securities' Chief Economist and Research Institute Executive Director, Zhao Wei, noted that the current real estate downturn differs from those in 2008 and 2015. He stated that issues such as resident housing demand, real estate company financing, and housing inventory mutually constrain each other, affecting the pace of market recovery.
- GF Securities
广发证券 - GF Securities' research report highlights that the recent "5·17 New Policies" show a significant shift towards combining inventory reduction and demand stabilization to address high real estate inventory levels. The report notes previous rounds of policy loosening were ineffective partly due to high inventory.
- Huatai Securities
华泰证券 - Huatai Securities' chief macroeconomist Yi Xun notes that lowering minimum down payment ratios marginally benefits the release of demand for rigid home purchases in tier-one and tier-two cities. After national adjustments in August 2023, both new and second-hand property transactions notably increased in Shanghai and Beijing within two to three weeks.
- Yuekai Securities
粤开证券 - Yuekai Securities' chief economist and institute director, Luo Zhiheng, indicated that local adjustments to down payments and mortgage rates are crucial to avoid creating a wait-and-see sentiment among residents. This is part of adapting the "5·17 new policy," combining inventory reduction with demand stabilization.
- Huachuang Securities
华创证券 - Huachuang Securities (华创证券) fixed income analyst Zhou Guannan believes that during a period of falling housing prices, residents' willingness to leverage up is influenced more by price expectations and income projections, both of which currently remain low. Thus, the current policy's signal may be more impactful than its immediate effects.
- Ping An Securities
平安证券 - Ping An Securities' Chief Economist, Zhong Zhengsheng, points out that the fiscal support for the real estate market's destocking efforts might need to be addressed within the context of a new round of fiscal and tax system reforms.
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