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"Old, broken and small" waiting for the wind to come

Because Erma is about to enter the first grade, the joy of forming the word "good" has gradually been replaced by housing anxiety.Under pressure, I recently started looking at various stocks and comparing prices.

Because I was going to replace it, my first choice was to sell the old and dilapidated house I bought before. The house is located in the old city. It is a 70-square-meter government-funded house built in the 1990s with two bedrooms and one living room. When I bought it in 2016, it was at a high price, with a unit price of 9,400 yuan per square meter. It was put online in 2020. At first, I thought I could make a little profit, and later I thought I could at least break even. But recently, I consulted the real estate agent and found that the current transaction price in the community has dropped to 5,000 yuan per square meter. I was immediately disappointed. If I sell it now, even if I don’t consider the cost of funds, I will lose more than 300,000 yuan.

After observing real estate for so many years, I have always known that the value of old, dilapidated and small houses in cities has dropped sharply, and I need to sell them as soon as possible, otherwise I will have to wait. One option is to wait for the rent-to-sale ratio to rise, but my house currently rents for only 1,100 yuan per month. If calculated based on my purchase price, the rent-to-sale ratio is only 0.17% (average rent per square meter divided by the house price per square meter), which is extremely low.

According to relevant data from CICC in the article "How do you view the rental-to-sale ratio of Chinese housing?", as of the end of February 2024, the average rental-to-sale ratio of Beijing, Shanghai and Shenzhen was 1.92%, and the average of the 27 key first- and second-tier cities was 2.22%.

According to the cross-sectional statistics of about 50 second- and third-tier cities combined with Shell data (as of February 2024), the rental-to-sale ratio in second- and third-tier cities ranges from 2.0% to 4.1%, with an average of 2.8%. Given the current interest rate situation, if the rental-to-sale ratio can reach 2.8%, it will be much more attractive than a five-year fixed deposit (1.8%).

Another thing to wait for, of course, is urban renewal. Recently, there is a piece of news that has attracted much attention. The names of the Housing and Urban-Rural Development Bureaus in many cities have been changed from Housing and Urban-Rural Development Bureaus to Housing and Urban Renewal Bureaus. This is a signal that urban renewal will dominate urban construction in the future.

Urban renewal mainly includes five aspects: old villages, old cities, old factories, shantytown renovation and comprehensive improvement. Except for comprehensive improvement which is mainly based on renovation and maintenance, the rest of the old villages, old cities, old factories and shantytown renovation are mainly based on demolition and reconstruction.

Therefore, when many people hear about urban renewal, they think that it means installing elevators in old residential areas and beautifying the streetscapes in old urban areas. This is too narrow-minded. In fact, the underlying logic of urban renewal is still to release the land value in the core areas of the city, that is, to demolish the old and build the new.

There is a basic premise here, that is, the quality problem of China's real estate construction. A joke that is not a joke is that there is no house in China that does not leak.

The design life of Chinese real estate is 50 to 70 years, but in reality, houses over 30 years old are basically considered "old and dilapidated". If we use this 30-year boundary as a starting point, basically all houses built before 1994 can be demolished and rebuilt.

Therefore, the scale of urban renewal is very large. In 2023, the national urban renewal investment will be about 2.6 trillion yuan. This year, the central government requires all 297 cities at prefecture level and above to start urban renewal, and all major cities are also working hard.

Taking Hangzhou as an example, in 2024, the city plans to implement 1,626 projects in 26 categories of urban renewal actions. As of the end of June, 1,682 projects have been implemented, with an implementation rate of 103.4%; 938 projects have completed their annual targets; and a total investment of 50 billion yuan has been completed.

I am now particularly looking forward to the fact that my "old, dilapidated and small" house can be included in the scope of urban renewal as soon as possible. I'm waiting for the wind to come!

The industry has changed

After asking around for prices, I decisively gave up my plan to sell the old, dilapidated and small house now, and changed my replacement plan to sell my current house and exchange it for a four- or five-bedroom house.

I circled a few communities, kept screening on the intermediary platform, and contacted agents to view houses. In the end, I was almost exhausted.

To replace the house, I first had to sell the current house. I had expected the house price to drop, but when I asked the real estate agent, I found that the price had dropped from 23,000 yuan per unit at its peak to 15,000 yuan now, a drop of more than 40%.

The most important thing is that the transaction volume is still shockingly low. The agent said that in the whole of June and July, there was only one house sold in my community. And the community where I live now has convenient transportation, a good school district, and second-hand houses, which are very popular in the second-hand housing market.

I checked the data from Beike.com, and found that in July, the number of newly listed second-hand houses in Nanchang was 7,793, up 5.1% from the previous month; the number of transactions was 577, down 2.4% from the previous month; and the transaction price was 9,500 yuan per square meter, down 7.3% from the previous month. In short, it is "one increase and two decreases", the number of second-hand houses listed increased, while the transaction volume and transaction price decreased.This shows that the real estate market has not yet reached its bottom.

The volume and price of second-hand houses have both fallen, and new houses are also difficult to sell.

I looked at the TOP100 sales rankings of Chinese real estate companies from January to July 2024 released by CRIC recently, and the data is still ugly. In July, the supply and transaction volume of the 30 key cities decreased by 25% and 30% month-on-month, and decreased by 18% and 13% year-on-year, respectively. The absolute volume was at the lowest level of the year (only slightly higher than January and February at the beginning of the year), lower than the monthly average in the second quarter, and the cumulative transaction volume in the first seven months decreased by 36% year-on-year. The performance of the top 100 real estate companies in July decreased by 36.4% month-on-month and 19.7% year-on-year. The cumulative performance from January to July was 2130.9 billion yuan, a year-on-year decrease of 37.5%.

The real estate agent who showed me the house said that they used to underwrite some new houses, but they basically didn't dare to do that in the past two years. The transaction volume of second-hand houses has dropped, and many store colleagues have resigned. "Many colleagues can hardly close a deal in a month, so they have to leave."

The real estate agent also talked to me about the highlights of his real estate agency industry. He entered the industry in 2018, when the real estate industry was booming. "I closed two deals in the first month and earned more than 10,000 yuan in salary."

He calculated with me carefully. The basic salary was 2,500 yuan, and the commission started at 30% of the commission income, with a tiered commission method, up to 75%. At that time, it was 1.5% for both the buyer and the seller, and 1% with a discount. The commission for a house plus various handling fees started at about 20,000 yuan. He once sold a large flat of more than 200 square meters with a total transaction price of more than 5 million yuan. He received a commission of more than 100,000 yuan, and he took half of it.

"Some time ago, there was a lot of discussion about the house-hopping in Nanchang. In fact, part of it was done by the agency and part of it was done by us agents. At that time, the money was so easy to make and everyone wanted to make a fortune. Now it is no longer possible and the transaction volume has shrunk significantly."

However, at the bottom of the cycle, the entire industry is changing, some people are leaving, some are transforming. Some real estate agents use live broadcasts and short videos, and various videos of viewing and selling houses have become a new way to attract traffic.

He gave me some advice, "When buying a house in a bear market, you should focus on the core value and whether it can appreciate in value while meeting demand. I don't believe the real estate industry will remain so depressed."

After looking around, the house I liked was a collective housing project of the neighboring district government. It has five bedrooms, two living rooms and two bathrooms. During the peak period, the unit price was over 20,000 yuan, and the total price was 4.5 million yuan. Now the listing price has dropped to around 2.8 million yuan, with a unit price of around 13,000 yuan.

But I think house prices still have room to fall.

The whole market is waiting

After looking at the market and studying the policies, everyone is waiting, waiting for policies, waiting for the market, and waiting for the bottom.

Policies are still being introduced. The Political Bureau of the CPC Central Committee meeting on July 30 stressed the need to implement new policies to promote the stable and healthy development of the real estate market, adhere to the combination of digesting existing stocks and optimizing incremental growth, actively support the acquisition of existing commercial housing for use as affordable housing, further improve the work of ensuring the delivery of housing, and accelerate the construction of a new model for real estate development.

Since the Politburo meeting in July last year, the central government has repeatedly stressed the need to digest existing real estate, with "purchasing existing commercial housing for use as affordable housing" being one of the key points.

Statistics from the China Real Estate Research Institute show that as of the end of July, more than 60 cities across the country have introduced policies for local governments or state-owned enterprises to purchase existing residential properties for use as affordable housing. These include megacities such as Guangzhou, Chongqing, Hangzhou, Zhengzhou, Changsha, and Tianjin, as well as counties or county-level cities such as Lujiang and Jiyuan.

The government's stockpiling of housing kills two birds with one stone. On the one hand, it helps to absorb the existing housing stock and reduce the risk of unfinished projects, which helps both real estate developers and home buyers. On the other hand, the stockpiled houses can be used as affordable housing to provide a bottom line for society.

However, the current difficulty is, where does the money for the purchase and storage come from? At present, local governments do not have the extra financial resources to do this work. We have also analyzed in previous articles that to really play a role, it is necessary to digest the current stock of about 770 million square meters of housing, which corresponds to three to four trillion yuan of funds.Such a huge amount of funds requires top-level design and planning from top to bottom.

Therefore, we can see that the acquisition and storage conditions of the cities that have announced plans are relatively stringent. In addition to being completed and unsold, the properties must also have convenient transportation and relatively complete supporting facilities. Some cities require projects to be equipped with a certain proportion of parking spaces, and some cities even require that they must be entire buildings.The more stringent the conditions, the weaker the government's motivation.

Under such circumstances, the policy level can only make some patchwork. For example, Zhengzhou City issued a document on July 31, announcing the cancellation of price guidance for commercial housing sales. The market considered this to be a major positive. In fact, these policies should have been implemented long ago, but they have been delayed until now and no longer have much practical significance.

Since the beginning of this year, cities such as Shenyang, Lanzhou, Zhengzhou and Ningde have clearly stated that they will no longer implement price guidance for new commodity sales, that is, they have cancelled sales price limits. Looking back, it did not cause any splash.

Maybe, in addition to waiting for the property market to recover, everyone is also waiting for confidence to be restored. It took more than two months to go around in circles, and I am still waiting, waiting for the landlord to lower the price.

The agent who contacted me said, "I will communicate again. I am confident."

His faith and my faith may not be the same faith.

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No.5910 Original first article | Author Liang Yunfeng

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