As Zhengzhou City Explores Real Estate Acquisitions, Cash Flow is Key(AI Translation)

【周刊提前读】郑州探索地产收储 现金流平衡是关键

[para. 1] Over the last three years, real estate demand in China has been weak, with sales reaching new lows and inventories rising. At an April 30, 2024, Central Political Bureau meeting, strategies were proposed to balance the absorption of existing property inventory and optimize new housing developments, marking the start of a new "de-stocking" policy cycle. [para. 2] At a State Council policy briefing on May 17, the government encouraged local governments to involve local state-owned enterprises (SOEs) in purchasing homes and land from developers. This was followed by several ministries laying out specific measures for policy implementation.

[para. 3] Guotai Junan Securities' report on June 10 highlighted that "de-stocking" is now a key focus, with local governments also tasked with meeting specific performance targets. [para. 4] Measures to address inventory are categorized into three types: supporting local government actions like reclaiming or buying idle land, empowering local SOEs to purchase unsold commercial housing for affordable housing conversion, and promoting a "sell old, buy new" exchange model.

[para. 5] Among these policies, top-level support is most robust for converting new housing into affordable housing, with the central bank providing a 300 billion yuan relending facility expected to trigger 500 billion yuan in bank loans. [para. 6] According to CRIC Research Center statistics, at least 23 cities have announced plans for local SOEs to acquire existing housing inventory, and 75 cities have introduced "old-for-new" housing exchange policies.

[para. 7] During a State Council meeting on June 7, Premier Li Qiang emphasized the importance of implementing existing policies effectively and preparing new measures for reducing inventory and market stabilization. [para. 9] Zhengzhou has been a pilot city for real estate stock acquisition since 2021, leading in designating local SOEs to acquire developers' existing projects and transform them into affordable rental units.

[para. 10] By the end of March 2024, Zhengzhou aimed to purchase 10,000 old homes, with local SOEs responsible for acquiring 5,000 under the "old-for-new" plan. [para. 11] Early experiences like those in Zhengzhou are scrutinized for potential replication in other regions. [para. 12-14] However, the Zhengzhou model's effectiveness varies as it faced severe market segmentation from 2017 onwards, significantly affecting transaction volumes and prices.

[para. 16] The local market’s excessive inventory and stalled projects prompted significant government intervention to stabilize market confidence. [para. 17] Zhengzhou's model for mitigating excessive real estate inventory involves converting properties into affordable rentals. [para. 19] Since 2019, the Ministry of Finance and the Ministry of Urban-Rural Development's pilot programs have supported rental market development in cities like Zhengzhou, which established Zhengdi Group for public rental housing operations.

[para. 20-21] The approach evolved with some initial slow adoption due to a complex and changing market environment; however, by mid-2022, when the liquidity crisis intensified, efforts to maintain project delivery expanded. [para. 22] The role of Chengfa Anju, Zhengzhou’s restructured municipal housing entity, encompassed absorbing excess inventory to stabilize the market.

[para. 24-25] The substantial acquisitions by Chengfa Anju, although beneficial, sometimes involved sales at significant losses for developers. [para. 30-31] Challenges in balancing acquisition prices and real estate market expectations also influenced the model's replication.

[para. 39] Moreover, comprehensive implementation of top-level policies such as financial support from the central government and adaptive local government measures are critical for the sustainability and scaling of acquisitions. [para. 41] As of June 30, Chengfa Anju had finalized 700 acquisitions through the "old-for-new" policy despite initial slow progress.

In conclusion, China's new real estate policy cycle focuses heavily on reducing inventory through targeted acquisitions by local SOEs and facilitating "old-for-new" exchanges to revive the housing market. Zhengzhou's model provides critical insights, balancing core challenges such as funding, market acceptance, and policy effectiveness for broader application across different regions.