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This article is from Nandu Wancaishe.

On July 21, the full text of the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reforms and Promoting Chinese-style Modernization" was released, providing directional guidance for future economic system reforms.

At the real estate level, the Decision proposes to improve the "market + guarantee" supply system, fully empower local regulation, reform the financing and pre-sale system, and improve the tax system. At present, China's real estate market is entering a new stage of development. What impact will the new reform direction have on real estate?

The end of the "three highs" model

The era of "everyone has a good house" has arrived

The Decision points out that we should speed up the establishment of a housing system that combines renting and purchasing, and accelerate the construction of a new model of 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.

In recent years, the central government and regulatory authorities have repeatedly stressed the need to accelerate the establishment of a housing system that combines renting and purchasing, and to accelerate the construction of a new model for real estate development. Pu Zhan, deputy director of the Policy Research Center of the Ministry of Housing and Urban-Rural Development, pointed out that building a new model for real estate development is a fundamental solution to solving the problems of real estate development and promoting the stable and healthy development of real estate. Increasing the construction and supply of affordable housing, improving the housing supply system, and better meeting rigid and improved housing needs are important contents of building a new model for real estate development.

Zhao Zhuowen, general manager of Guangzhou Tongchuang Excellence Real Estate Investment Consulting Co., Ltd., pointed out that this deployment on real estate means that "high debt, high turnover, and high leverage" have come to an end. The management has repeatedly emphasized the need to establish and improve basic systems such as financing, finance, taxation, land, and sales. The establishment and improvement of basic systems means that the real estate industry will usher in new rules. Before this, the real estate financing coordination mechanism and the pilot sale of existing homes can be considered the beginning of new rules.

Zhao Zhuowen believes that the future will also include the collection of real estate taxes, subsequent processing after the expiration of land terms, etc. From financing, finance and taxation to land and sales, the old rules that have been used for more than 30 years are facing changes.

In the view of Wang Shao, president of the Guangdong Real Estate Association, under the new real estate development model, it is urgent to implement real estate supply-side reform and practice the new development model. Building a reasonable framework for the new development model requires overall consideration from the aspects of real estate regulators, suppliers and demanders. Regulators "determine housing based on people, land based on housing, and money based on housing", and reasonably arrange land supply and finance to ensure a balanced market supply and demand and a reasonable structure. Through "real estate +", high-quality space, places and services are provided for urban production and residents' life development throughout the life cycle of land use, project development, post-operation, property services, etc., promoting the integration of industry and real estate from the perspective of "ecology, life, and production", rather than a single pure commodity housing sales.

In order to "better meet rigid and improved housing needs", Wang Shao believes that my country's housing consumption has shifted from a total shortage to a structural supply shortage, entering a new stage of quality improvement. The people's housing requirements have shifted from "whether there is" to "how good it is", and from "everyone has a house" to "everyone has a good house". Improvement demand is not simply a small exchange for a big one, an old exchange for a new one, or a far exchange for a near one, but a comprehensive improvement of living quality, requiring cultural entertainment, sports and leisure, home office, healthy elderly care and other spiritual and improvement facilities. People expect the housing environment to be more ecological and beautiful, the living space to be more spacious and comfortable, the supporting facilities to be more complete and convenient, the residential functions to be safer and smarter, the lifestyle to be more environmentally friendly and healthy, and the community culture to be more active and rich. Wang Shao believes that in the future, "there is a lot of room for improvement demand".

“The end of the purchase restriction policy”

Be fully prepared for the "protracted war"

The "Decision" points out that city governments should be given full autonomy in regulating the real estate market, and adopt policies based on the specific conditions of each city. Relevant cities should be allowed to cancel or reduce housing purchase restrictions, cancel standards for ordinary and non-ordinary residential properties, etc.

Since last year, many places across the country have gradually lifted restrictions on home purchases. So far, only Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin and parts of Hainan Province still implement restrictions. This meeting is considered by the industry to be the "end of the restrictions on home purchases."

Zhao Zhuowen believes that the conference's proposal to "fully empower city governments with the autonomy to regulate the real estate market, adopt policies based on the specific conditions of each city, and allow relevant cities to cancel or reduce housing purchase restrictions" means that city governments can decide on their own to withdraw from purchase restrictions, "including several first-tier cities and Hainan and other areas that are still implementing purchase restrictions. The door to purchase restrictions will be opened sooner or later."

Cao Zhiwei, member of the Standing Committee of the Guangdong Provincial Committee of the Chinese People's Political Consultative Conference and director of the Policy Research Institute of the Guangdong Real Estate Chamber of Commerce, pointed out that the "five restrictions" in the real estate industry (referring to purchase restrictions, loan restrictions, price restrictions, business restrictions, and sales restrictions) have added too many shackles to the real estate industry as a pillar industry in the past decade, resulting in its development not conforming to economic laws and unable to operate in a market-oriented manner. "The "Decision" of the Third Plenary Session of the 18th CPC Central Committee mentioned that the content of "differentiated policies for different cities" is still worth looking forward to. The next step is to see the policy determination and strength of major cities." However, Cao Zhiwei frankly admitted that although the purchase restrictions have been lifted, judging from market data, there has been no explosive growth, which shows that everyone's view on buying houses is still rational.

Zhao Zhuowen believes that under the series of policies to reduce inventory and stimulate real estate consumption, the market will not fall too much. Delaying the decline of real estate and gradually releasing risks are the countermeasures currently taken by relevant departments. However, Zhao Zhuowen believes that high-quality development is the inevitable direction for the entire real estate industry in the future. "Houses are no longer a question of 'whether or not', but a question of 'good or bad'." He suggested that the real estate industry should be fully prepared for a "protracted war."

Regarding the "Decision" allowing relevant cities to cancel the standards for ordinary residential and non-ordinary residential buildings, Zhao Zhuowen pointed out that "canceling the standards for ordinary residential and non-ordinary residential buildings" directlyVolume rateThe restrictions on villa products (over 144 square meters) and large-area products (over 144 square meters of building area) have been lifted, and related fees such as deed tax have been reduced. This is to encourage improvement demand and promote "old for new", which has led to the introduction of corresponding policies.

Cao Zhiwei said that "old for new" is indeed a major trend. "According to our research, many home buyers need to sell their old homes to buy new ones. These replacement needs are in pursuit of a better life, and we should support them."

Zhao Zhuowen analyzed that in the first half of this year, both the volume and price of the real estate market fell, and the price drop was greater than the decline in sales volume. The current market is looking for a new balance point, and the key point of the real estate market in 2024 is "stabilizing housing prices". "Only when housing prices are stabilized can the confidence of the real estate market be fully restored and improved." He believes that after this important meeting, the dominance of real estate market regulation has been handed over to local city governments. "We have reason to believe that measures to boost the property market in various places in the second half of the year will continue to be introduced." But he also admitted that "it is difficult to expect more intense stimulus policies in the second half of the year."

Reform of the pre-sale system of commercial housing

It is a gradual process

The "Decision" points out that "the real estate development financing method and commercial housing pre-sale system should be reformed."

In the past two years, "guaranteed delivery of housing" has become one of the focuses of regulatory authorities in promoting the resolution of real estate risks. In January this year, the Ministry of Housing and Urban-Rural Development and the State Administration of Financial Supervision issued the "Notice on Establishing an Urban Real Estate Financing Coordination Mechanism" to guide local governments to establish an urban real estate financing coordination mechanism. On June 7, the two departments once again focused on the coordination mechanism and jointly issued the "Notice on Further Playing the Role of the Urban Real Estate Financing Coordination Mechanism to Meet the Reasonable Financing Demands of Real Estate Projects", fully supporting the financing and completion delivery of projects that should be continued, and doing a good job in ensuring the delivery of housing.

Chen Wenjing, director of market research at China Index Academy, believes that "the financing method of real estate development is highly related to the pre-sale system of commodity housing. Under the pre-sale system of commodity housing, part of the funds needed for real estate development and construction come from financial support such as bank development loans, and part from pre-sale funds."

He further stated, "Under the pre-sale system of commercial housing, part of the funds needed for real estate development and construction come from financial support such as bank development loans, and part comes from pre-sale funds. Under the pre-sale system, developers use development loans and other financing for a shorter period of time, and can gradually repay the loans after the pre-sale starts, and the bank's funds return relatively quickly. After switching to the sale of existing houses, the use period of corporate development loans is extended. How to optimize and adjust the supporting financial support of financial institutions may be a research direction for future policies."

In fact, since the real estate market entered a downward phase in 2021, the call for canceling the pre-sale system has been growing. The Ministry of Housing and Urban-Rural Development has previously made it clear that "the sale of existing homes will be promoted in an orderly manner". Since June 2023, more than 10 cities including Zhengzhou, Kaifeng, Hefei, Wuhu, Jincheng, Changsha, Xiong'an, Liuzhou, Jingmen, Quanzhou, and Jinjiang have clearly and publicly supported the pilot of selling existing homes.

Yan Yuejin, research director of the E-House Research Institute, believes that "based on the overall effective resolution of current real estate financial risk issues, it is expected that this year and next year will be key years for the adjustment of real estate financial policies. Systematic policies will be introduced, which will have a very obvious effect on the adjustment of the real estate financial landscape, especially in the two areas of financing and pre-sales. There will be major systematic adjustments."

However, Li Yujia, chief researcher of the Housing Policy Research Center of the Guangdong Provincial Urban Planning Institute, also said, "The reform of the pre-sale system of commercial housing is a gradual process. We must adopt a gradual transition model and gradually transform from pre-sale to current sale." In the future, the two models of pre-sale and current sale may coexist. The development of pre-sale housing will mainly focus on strengthening capital supervision, while the development of current sale housing will have certain support policies in terms of land transfer, planning and construction approval, financing and delivery.

Is property tax coming?

Relevant legislation may continue to advance

The new round of fiscal and taxation system reform is one of the core topics of the Third Plenary Session of the 18th CPC Central Committee. The Decision clearly points out the need to "perfect the real estate taxation system" in the "improvement of the social security system".

Public data shows that since 2013, when the Third Plenary Session of the 18th CPC Central Committee first proposed to accelerate the legislation of real estate tax and promote the reform in a timely manner, my country's real estate tax reform has officially kicked off. After the 19th CPC National Congress in 2017, it was determined to promote the legislation and implementation of real estate tax and gradually establish and improve a modern real estate tax system. On October 23, 2021, the Standing Committee of the National People's Congress decided to authorize the State Council to carry out pilot work on real estate tax reform in some regions. However, with the changes in the real estate market, in March 2022, the Ministry of Finance stated that "the conditions for expanding the pilot cities of real estate tax are not met."

At the beginning of 2023, Lou Jiwei, former Minister of Finance, published an article entitled "Reform of China's Fiscal System in the New Era and Future Prospects", in which he pointed out that real estate tax is the most suitable tax type as a local tax, and a pilot program should be launched as soon as possible after the economy returns to normal growth. In April last year, my country fully realized the unified registration of real estate, and this news once again triggered speculation about real estate tax.

Regarding this "Decision", Chen Wenjing, director of market research at China Index Academy, believes that "in the medium and long term, legislation and reforms related to real estate tax may continue to advance, but the current real estate market is in a stage of deep adjustment, and the timing for the introduction of real estate tax is not yet ripe. It is expected that the expectation for the introduction of real estate tax in the short term will be weak. In addition, in improving the real estate tax system, reducing transaction taxes and fees, such as reducing the deed tax rate, is also an important measure to support housing security."

"The real estate tax at the holding stage is constrained by the continued downturn in the real estate market. In the short term, the expansion of pilot projects and legislation have been temporarily shelved, but there is still a need to promote it in the medium and long term," said CRIC Research Center. "On the one hand, the collection of real estate tax at the holding stage helps support local public finance and promote the transformation of land finance. On the other hand, direct taxes such as housing are an important aspect of tax reform, and increasing the proportion of property taxes is also an institutional tool to promote common prosperity."