Third Plenary Session Analysis: How the Real Estate Sector Establishes a New Growth Model (AI Translation)

【周刊提前读】三中全会全解读：房地产如何确立新发展模式

China's real estate sector has been navigating a challenging period of risk exposure and market clearance over the past three years, with both supply and demand still struggling at low points. The market is looking to high-level meetings to clarify the way forward [para. 1][para. 2].

On July 19, during a press conference regarding the Third Plenary Session of the 20th Central Committee of the Chinese Communist Party, officials, including Han Wenxiu and Pu Zhan, explained the implications of the "Decision" on real estate reforms. The "Decision" outlines a new development model focusing on promoting both renting and purchasing, constructing affordable housing, adopting city-specific policies, and reforming systems to ensure high-quality development [para. 2][para. 3][para. 4]. Zhao Xiuqi emphasized this new model aims to balance supply and demand and move away from the “three highs” model, which involved high debt, high turnover, and high leverage [para. 4][para. 5].

Short-term measures include absorbing existing inventory and optimizing new supply, while medium- to long-term reforms focus on improving fundamental systems, such as the pre-sale system for commercial housing. The market had anticipated "major measures," but all feasible policy tools have already been deployed. The focus is now on responses from the demand side [para. 6][para. 7]. Recent easing policies in first-tier cities have led to brief market recoveries, but issues persist [para. 6][para. 9].

Policymakers are pushing for increased construction and supply of affordable housing, urban village renovations, and "dual-use" public infrastructure. Despite several recent easing policies, the market has seen little improvement. Data from the National Bureau of Statistics shows slight stabilization, but indicators remain at low levels [para. 8][para. 9]. Han Wenxiu called for further implementation and enhancement of new policies, stressing the need for better systems of financing, fiscal policy, land management, and sales to meet housing needs [para. 9][para. 10].

The concept of a dual-track system of market-driven and guaranteed housing has been proposed for nearly 30 years but has gained momentum recently. Affordable housing accounts for less than 10% of China's housing stock. Recent policies, including the "Guiding Opinions on Planning and Constructing Affordable Housing" and the "517" new policy, reiterate the need for strict closed management of affordable housing to prevent its conversion to commercial housing [para. 10][para. 12]. Efforts will focus on sale-based and rent-based models [para. 11][para. 12].

The flexibility for cities to tailor policies to local conditions has been repeatedly emphasized. Cities have more autonomy now to implement housing policies based on local market conditions, including the option to cancel or reduce purchase restrictions [para. 13][para. 14]. Following directives, cities like Guangzhou, Shanghai, and Hangzhou have adjusted their housing policies, easing restrictions on purchases [para. 14][para. 15]. Liu Aihua from the National Bureau of Statistics highlighted the need to research and reserve new policies for market stabilization [para. 15].

The "Decision" mentions reforms in real estate development financing, the pre-sale system, and the real estate tax system. Introducing a comprehensive real estate tax is unlikely during the market downturn. The pre-sale system, allowing developers to sell under-construction projects, has been a risk factor and is now under reconsideration in favor of current sale systems [para. 16][para. 17]. The pre-sale system's risks became apparent during rapid market expansion, with companies leveraging high turnover strategies to scale up quickly [para. 17][para. 18]. Policymakers are addressing housing delivery risks, bringing the pre-sale system back into focus [para. 18].

The shift away from the "three highs" model emphasizes constructing quality housing. Companies like Evergrande and Country Garden exploited regulatory loopholes to expand quickly but now face financial distress. Policymakers have tightened regulations on presale funds and project financing, prioritizing project completion over company survival, signaling a slow market recovery and a persistent overcapacity issue [para. 19][para. 20]. This restructuring aims for higher-quality development, marking a challenging transition for the real estate industry [para. 20].