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The Third Plenary Session of the 20th Central Committee of the Communist Party of China was held in Beijing from July 15 to 18, 2024.

The "Communiqué of the Third Plenary Session of the 20th Central Committee of the Communist Party of China" and the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reforms and Promoting China's Modernization" released on the 18th both mentioned real estate. From the content point of view, the key points are as follows:

1. Implement various measures to prevent and resolve risks in key areas such as real estate.

2. Accelerate the establishment of a housing system that combines renting and purchasing, and accelerate the construction of a new model for real estate development. Increase the construction and supply of affordable housing to meet the rigid housing needs of the working class.

3. Support the diversified housing needs of urban and rural residents. Fully empower city governments to regulate the real estate market, formulate policies based on the city, and allow relevant cities to cancel or reduce housing purchase restrictions and cancel the standards for ordinary and non-ordinary residential buildings.

4. Reform the financing methods for real estate development and the pre-sale system for commercial housing. Improve the real estate taxation system.

On July 18, 2024, the Communiqué of the Third Plenary Session of the 20th Central Committee of the Communist Party of China was released, pointing out thatwantCoordinate development and security, and implement various measures to prevent and resolve risks in key areas such as real estate, local government debt, and small and medium-sized financial institutions.

This is not the first time that resolving real estate risks has been mentioned. As early as October 30, 2022, the proper resolution of real estate financial risks was emphasized in the "Report on the Situation of Financial Work" issued by the State Council.

Earlier this year, the Central Emergency Work Conference also emphasized the need to coordinate the resolution of risks such as real estate, local debt, and small and medium-sized financial institutions, crack down on illegal financial activities, and resolutely maintain the bottom line of preventing systemic risks.

Since the real estate market entered a period of deep adjustment, many real estate companies have defaulted on their debts due to factors such as downward market pressure and poor financing.

In 2023, the policy of supporting real estate financing has improved marginally. In the first half of 2024, various regions have promoted the "white list" of financing coordination mechanism. The supporting subjects are sinking from enterprises to specific projects, which has alleviated the liquidity pressure of real estate companies to a certain extent. However, the scale of non-bank financing has not changed the downward trend. Most private real estate companies, especially those in trouble, still have outstanding financing difficulties.Judging from the total financing amount of 65 typical real estate companies over the years, the total financing amount in the first half of 2024 was 213.1 billion yuan, a year-on-year decrease of 37%.

In terms of debt maturity, the amount of bonds due for real estate companies in the first half of 2024 will reach 279.9 billion yuan.Among them, the scale of bonds maturing for real estate companies in the first and second quarters exceeded 130 billion yuan, and the scale of bonds maturing in the third quarter exceeded 100 billion yuan.

Under the pressure of debt repayment, many real estate companies have chosen to extend or replace their debts in recent years. Against this background, the debt pressure of real estate companies in 2025 is also relatively large.The amount of debt due in 2025 will be even higher than that in 2024. If the sales market remains sluggish for a long time, real estate companies that have already achieved debt restructuring will still face debt defaults again.

Although there is a financing coordination mechanism in the first half of 2024, it is expected that real estate companies in trouble will still find it difficult to obtain bank loans under the current environment.This is mainly because when banks apply for loan collateral, they give priority to collateral with relatively stable value and strong liquidity, and generally do not accept collateral that is difficult to liquidate, difficult to register, or has large price fluctuations. Most real estate companies in trouble have few assets that can be used for mortgage loans, and it is still unlikely to obtain bank loans under the market mechanism.

For such enterprises, it is recommended that relevant departments should increase the intensity and speed of clearing out real estate enterprises, and use market-oriented means to enable risky enterprises to achieve debt restructuring or bankruptcy liquidation as soon as possible.Reshaping value through debt restructuring is an effective way to solve the current credit problems in the industry.

On July 18, 2024, the Third Plenary Session of the 20th Central Committee of the Communist Party of China adopted the "Decision of the CPC Central Committee on Further Comprehensively Deepening Reforms and Promoting China-style Modernization", which requires "solving the most direct and realistic interests of the people and continuously satisfying their yearning for a better life" under the "improvement of the system of safeguarding and improving people's livelihood."

We should speed up the establishment of a housing system that promotes both renting and purchasing, and accelerate the construction of a new model for real estate development. We should increase the construction and supply of affordable housing to meet the rigid housing needs of the working class. We should support the diversified housing needs of urban and rural residents. We should fully empower city governments to regulate the real estate market, adopt policies based on the city, and allow relevant cities to cancel or reduce housing purchase restrictions and cancel the standards for ordinary and non-ordinary residential buildings.

There are several parts mentioned here. The first isWe will accelerate the establishment of a housing system that combines renting and purchasing, and build a new model for real estate development. We will increase the construction and supply of affordable housing to meet the rigid housing needs of the working class.

my country has formulated different affordable housing policies and measures at different times, from welfare housing, affordable housing, low-rent housing, public rental housing, affordable rental housing, and shared-ownership housing, to the current gradual shift to the new "allocation + rental and sale" model.

In August 2023, the State Council reviewed and approved the Guiding Opinions on Planning and Building Affordable Housing, proposing to build sales-based affordable housing. The central bank set up a 100 billion rental housing loan support plan, which was piloted in eight cities, including Jinan, Zhengzhou, Chengdu, Qingdao, Tianjin, Changchun, Chongqing, and Fuzhou, to expand the supply of rental housing through market-based batch purchases of existing housing.

On May 17, 2024, at the State Council's regular policy briefing, the People's Bank of China stated that it would set up 300 billion yuan of affordable housing refinancing, encourage and guide financial institutions to support local state-owned enterprises in purchasing completed but unsold commercial housing at reasonable prices in accordance with market-oriented and rule-of-law principles for use as sales-oriented or rental-oriented affordable housing. Taking into account the overall policy connection, the rental housing loan support plan will be incorporated into the affordable housing refinancing policy and will be fully promoted nationwide.

On June 20, the Ministry of Housing and Urban-Rural Development held a meeting to clarify that the scope of support for the acquisition and storage of existing housing would be expanded to county-level cities.

According to statistics, the government's housing stock purchase and storage model has been implemented in at least 23 key cities across the country.For example, Zhengzhou announced that it would purchase 5,000 second-hand houses through the Urban Development Group. Hangzhou Lin'an District also issued an announcement on the acquisition of existing housing, deciding to purchase 10,000 square meters of housing for use as public rental housing. Guangzhou Zengcheng District plans to publicly purchase 20,700 square meters of commercial housing as resettlement housing for the Guangzhou-Shantou Railway project. In principle, the unit price of housing transactions is "land cost + construction cost."

However, it should be noted that the re-loan for affordable housing is clearly based on the principle that affordable housing is used to meet the rigid housing needs of the working-income group, and the house type and area standards of the purchased commercial housing are strictly controlled.That is, the majority of them are small-sized units with a construction area of ​​no more than 70 square meters. There are few projects in the current market that can meet the needs of units with a construction area of ​​less than 70 square meters and are ready-made units.If we add the basic return requirement that rental income must cover the cost of capital, there are only a handful of projects that meet the requirements.

Moreover, the current local governments are under great pressure to repay debts, and the purpose of using targeted low-interest loans for the acquisition and storage of affordable housing is to further revitalize existing assets and reduce debt. However, if the allocated affordable housing built after the acquisition and storage cannot be sold, then the only option is to convert the allocation to rental. At present, the rental return rate in various cities is relatively low, and state-owned enterprises may further fall into the dilemma of "not being able to make ends meet".

Therefore, we believe that as an attempt and exploration to destock, affordable housing re-lending will still face many problems in the actual implementation process. Only by properly handling these problems can we better promote the implementation of the policy.At the same time, only by completing the transformation of affordable housing to the "allocation + rental and sale" model can we further accelerate the establishment of a housing system that combines renting and purchasing and build a new model of real estate development.

Secondly, the meeting also mentionedSupport the diversified housing needs of urban and rural residents. Fully empower city governments to regulate the real estate market, formulate policies based on the city, and allow relevant cities to cancel or reduce housing purchase restrictions and cancel the standards for ordinary and non-ordinary residential buildings.

In the first half of 2024, the main tone of real estate policies continued to be loose. Since the Politburo meeting in April, the policy focus has shifted to "destocking."The residents' credit policy has ushered in an epic benefit. The central bank, the State Administration of Financial Supervision and other departments have continued to introduce a number of financial measures. Lowering the minimum down payment ratio is aimed at lowering the threshold for home purchases, canceling the lower limit of mortgage interest rates, lowering provident fund loan rates, and lowering LPR interest rates, etc., in order to reduce the mortgage burden on residents.

In the first half of the year, local restrictive housing purchase policies continued to be relaxed. According to CRIC statistics, at least 222 provinces and cities across the country issued relaxed and incentive housing purchase policies 341 times, a year-on-year increase of 71%, but a decrease of 24% compared with the second half of 2023.Currently, only six cities in the country, including Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin and Hainan Province, are still implementing housing purchase restrictions.

At present, most of the second- and third-tier cities in the country have fully lifted restrictions on housing transactions.It is foreseeable that Tianjin and Hainan, which have not yet lifted their purchase restrictions, will most likely follow suit. The regulatory policies of the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen still have significant room for relaxation.In the future, policies on the scope of restricted purchase areas, social security requirements for non-local residents, down payment ratios, mortgage interest rate floors, and the number of sets of multiple children are expected to be optimized. The focus of demand-side policies in other cities will gradually shift from unbundling transaction restrictions to increasing housing purchase incentives. Increasing housing purchase subsidies, reducing housing transaction taxes and fees, promoting housing ticket placement, and supporting "old for new" with real money are all options.

The Decision of the CPC Central Committee on Further Comprehensively Deepening Reform and Promoting China's Modernization also mentioned thatReform the financing methods for real estate development and the pre-sale system for commercial housing. Improve the real estate taxation system.

In fact, under the general background of "ensuring delivery of buildings", the pilot sales of existing homes has been accelerating. At the beginning of 2023, the Ministry of Housing and Urban-Rural Development proposed that cities with conditions could carry out pilot sales of existing homes, and no new risks of delivery of buildings should arise.

Subsequently, many provinces and cities such as Shandong and Henan mentioned the pilot program of selling ready-made houses in work meetings. Henan Province clearly took Zhengzhou and Kaifeng as pilot cities to actively explore the reform of the pre-sale system and the sale of ready-made houses. By January 2024, the first plot of land for the pilot program of selling ready-made houses in Zhengzhou was successfully sold. This means that the pilot program of selling ready-made houses has taken a key step forward.

According to incomplete statistics from CRIC, at least 13 provinces and cities have clearly piloted the sale of existing homes since the second half of 2023. However, judging from the models of Beijing, Shanghai, and Shenzhen, which have piloted the sale of existing homes in the past few years, the situation is mixed.

Although the existing housing sales have advantages such as what you see is what you get and buyers are more proactive.Two major pain points deserve more attention: first, the time from land acquisition to sales of ready-to-move-in projects is too long, which results in a slow cash flow for real estate developers; second, during the longer development and construction cycle, the external market environment may become uncertain.

It can be foreseen that the implementation of the system of selling existing homes will undoubtedly disrupt the operating model of the entire industry. All participating parties, such as the government and real estate companies, will face the "pain" brought about by the promotion of selling existing homes.therefore,At present, the implementation of the system of selling existing homes is difficult to implement quickly and comprehensively, and can only be tried out gradually by taking a point-to-surface approach.

We believe that in addition to the system of selling ready-made properties, in order to address various problems arising from current delivery, properties for urgent need can be gradually adjusted from the previous model of applying for mortgage loans immediately after the down payment is paid to applying for loans after the developer delivers the property.On the one hand, this forces companies to speed up construction progress; on the other hand, applying for loans for existing homes can maximize the protection of homebuyers' rights and interests. If there are product quality problems, they can be discovered and adjusted accordingly. At the same time, it can also urge real estate companies to pay more attention to product strength and promote healthy competition; thirdly, the confidence and expectations of homebuyers are improving, and their ability to pay for home purchases will also be stronger.

The Third Plenary Session of the 20th CPC Central Committee gave a relatively comprehensive positioning to the real estate industry, namely, risk prevention and the development direction of new models, and mentioned both the policy side, market supply and demand, and system construction.

It can be seen that under a series of favorable policies recently, the real estate market is undergoing positive changes. In the future, we must adhere to the combination of digesting the existing stock and optimizing the increase, further implement and improve the new real estate policies, do a good job in ensuring the delivery of houses, and revitalize the existing commodity housing and land resources.

It should be pointed out that my country's new urbanization is still advancing, and there is still considerable room for high-quality development of real estate. Before that, the market will have to go through a period of adaptation and adjustment.