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There has been significant progress in acquiring existing commercial housing for use as affordable housing.

On August 7, Shenzhen Anju Group Co., Ltd. issued an announcement stating that in order to actively build a "security + market" housing supply system and follow the principles of "marketization, rule of law" and voluntary participation by both parties, the companies affiliated to Shenzhen Anju Group Co., Ltd. intend to purchase commercial housing for use as affordable housing. Now, projects for commercial housing to be used as affordable housing are being collected in Shenzhen.

It is understood that this is the second first-tier city to start the "purchase instead of construction" model. Earlier on May 30, the Zengcheng government of Guangzhou announced that it was publicly soliciting applications for eligible commercial resettlement housing sources for the Guangzhou (Xintang) to Shanwei Railway Project (Xintang Section), that is, soliciting eligible residential housing sources (real estate companies) from the society, and then selecting resettlement housing sources according to relevant procedures.

Yan Yuejin, deputy director of Shanghai E-House Real Estate Research Institute, told the China Times reporter that Guangzhou's approach is somewhat special because it is a "purchase instead of construction" under a specific project. But from Shenzhen's perspective, it is carried out for the entire city, with a stronger demonstration effect and more signal significance. Shenzhen's operation also means that first-tier cities have already started the "purchase instead of construction" model, and it is expected that Beijing and Shanghai will follow suit.

It is important to note that "destocking" has become one of the focuses of recent real estate policies, among which "state-owned enterprises purchasing and storing unsold new houses" is the most direct measure to promote the current policy and achieve the most direct destocking effect. Recently, the acquisition of existing commercial housing for use as affordable housing has been highlighted at multiple meetings of the central bank and the Ministry of Housing and Urban-Rural Development. According to monitoring by the China Index Academy, more than 10 cities have issued notices to collect commercial housing for use as affordable housing, clarifying the scope, conditions and prices of the collection.

Two highlights of Shenzhen's stockpiling

Shenzhen Anju Group Co., Ltd. (hereinafter referred to as "Shenzhen Anju Group") is a state-owned enterprise and an affordable housing agency in Shenzhen. As of the end of 2023, the group had total assets of 196.5 billion yuan, net assets of 104.3 billion yuan, and a total investment of 169.1 billion yuan; it has planned to build 282,000 affordable housing units and supply 122,000 units.

It is understood that the scope of Shenzhen Anju Group's collection of commercial housing for use as affordable housing projects in Shenzhen is: residential, apartment, dormitory, etc. of commercial housing nature within the scope of Shenzhen City (excluding the Shenzhen-Shantou Special Cooperation Zone), with priority given to whole buildings or whole units that have not been sold and can be closed for management. Building projects (housing sources)

The above-mentioned housing sources collection must meet four conditions: First, the location is suitable. It is located in an area with convenient transportation and relatively complete supporting facilities, close to the core area of ​​regional development, and has industrial foundation and development advantages; second, the apartment size is suitable. In principle, the main apartment size of the project (housing source) should meet the requirements of the apartment size and area (less than 65 square meters) of our city's affordable housing; third, living convenience. The surrounding transportation is convenient, close to subway entrances and bus stations, and has relatively complete infrastructure, living facilities and other livable conditions; fourth, the procedures are complete. The proposed acquisition project must have four complete certificates to ensure the legality and compliance of the project and meet the loan requirements of financial institutions.

Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Provincial Urban Planning Institute, pointed out that there are two highlights of Shenzhen's acquisition of existing housing for affordable housing. One is that the area is relatively small, mainly below 65 square meters. This is mainly because the policy clearly states that the acquisition of existing housing for affordable housing must meet the local minimum area standard for affordable housing. In other words, commercial housing cannot be acquired for the purpose of destocking, but should be promoted on the premise of meeting the requirements of the affordable housing policy.

Second, the Anju Group was designated to promote this work. This also means that achieving financial balance is the first principle of stock acquisition. The price of allocated affordable housing is 50% to 60% of the price of commercial housing in the same area. If financial balance is to be achieved, the acquisition price may be lower.

"When it became difficult to dispose of assets and sell properties at low prices to recover funds, the government happened to have the task of raising funds for affordable housing, so we sold it to the government at a lower price. Therefore, the purchase price should be the cost price or a bargain price," said Li Yujia.

On the evening of August 7, Shenzhen Anju Group told a reporter from the China Times that "Regarding core issues such as the purchase price, the government has not yet made clear policy documents, it is just our internal operation level. Our internal purchase method has not been officially issued."

In addition, Sun Hongmei, senior analyst at the South China Branch of China Index Academy, believes that the current policy direction of "boosting demand + destocking" has been made clear, and Shenzhen Anju's purchase and storage move will play a positive role in destocking and stabilizing the Shenzhen property market. It will help ease the financial pressure of real estate companies, and at the same time help restore market sentiment and increase the supply of affordable housing.

Data from the Shenzhen Real Estate Information Platform shows that as of the end of July, the number of first-hand residential units available for sale in Shenzhen was 48,974. In addition, data from the Leyoujia Research Center shows that as of the first half of 2024, the inventory area of ​​new homes in Shenzhen will be 5.1621 million square meters, with a sales cycle of 24.8 months.

Many places have introduced policies to encourage state-owned enterprises to purchase and store

Recently, the purchase of existing commercial housing for use as affordable housing has been highlighted in many meetings of the People's Bank of China and the Ministry of Housing and Urban-Rural Development.

China Index Academy pointed out that the policy measures for destocking in the previous round were mainly monetary resettlement for shantytown renovation, which released incremental housing demand by demolishing old houses and guided housing demand into the market by providing monetary resettlement, digested the market stock and realized destocking. The policy measures for destocking in this round mainly include state-owned enterprises’ acquisition and storage of unsold new houses, old-for-new, and non-residential housing conversion, among which “state-owned enterprises’ acquisition and storage of unsold new houses” is the main policy push and the most direct measure for destocking. The main reason for the change in policy thinking is that the supply and demand relationship faced by my country’s real estate market has changed significantly, which is mainly reflected in the urbanization rate and the household leverage ratio.

In terms of urbanization, my country's urbanization rate will reach 66.2% in 2023, an increase of 8.9 percentage points from 2015. The urbanization rate has been at a relatively high level, the basic housing needs of residents have been met, and the scale of shanty towns still to be demolished has been significantly reduced; in terms of residents' leverage ratio, the household sector leverage ratio will reach 71.8% in 2022, an increase of 19.6 percentage points from 2016, and it is becoming more difficult for residents to further increase leverage to enter the market.

Li Yujia believes that the sales of newly built commercial housing have declined, the capital chain of developers is tight, and there is a certain pressure to ensure the delivery of houses and repay debts, which has led to the task of risk prevention becoming tight. Through the acquisition of existing stocks, it can not only solve the task of ensuring the delivery of houses, but also eliminate inventory to stabilize the commercial housing market, ease the capital chain of developers, better repay debts, and increase the channels for raising funds for affordable housing. Moreover, in the document No. 14 on the planning and construction of affordable housing, it is also clearly stated that raising funds from existing stocks is a channel.

In fact, since the May 17 new policy, many places have introduced policies to encourage state-owned enterprises to purchase and store completed but unsold new houses. According to monitoring by the China Index Academy, more than 10 cities have issued notices to collect commercial houses for use as affordable housing, clarifying the scope, conditions and prices of housing collection.

For example, on July 26, Dalian City issued an announcement that it would start the work of purchasing existing commercial housing for use as affordable rental housing, and publicly solicited existing commercial housing from the society. Among them, the "Dalian State-owned Housing Management Group Co., Ltd." selected by the municipal government will be the acquisition entity to implement the acquisition, and the acquisition price will be based on the replacement price of the same area as the reference upper limit, that is, the land cost and construction cost plus a profit of no more than 5%.

Although "state-owned enterprises buying up unsold new homes" is the main policy path for destocking, the overall scale of acquisition is still relatively small. Data released by the central bank showed that as of the end of June this year, the balance of 300 billion yuan of affordable housing refinancing was 12.1 billion yuan. This also shows that only 12.1 billion yuan of the 300 billion yuan of affordable housing refinancing was used.

Xu Yuejin, deputy director of research at China Index Academy, pointed out that the promotion of state-owned enterprises' acquisition and storage may face certain challenges, including acquisition and storage prices, supply and demand mismatch, etc. For example: in some cities where real estate developers have great inventory pressure and strong willingness to sell, the demand for affordable housing is relatively limited, and the scale of acquisition and storage by state-owned enterprises may be relatively small; while in some cities where the demand for affordable housing is relatively strong (first-tier and core second-tier cities), the market inventory level may not be high, and real estate developers are relatively less willing to sell existing housing at a discount.

Other industry insiders pointed out that the biggest difficulty for state-owned enterprises in stockpiling is still related to prices.

In August 2023, the State Council Executive Meeting reviewed and approved the "Guiding Opinions on Planning and Construction of Affordable Housing" (Guofa [2023] No. 14, hereinafter referred to as "Document No. 14"). Among them, "Document No. 14" clearly states that the allocation rules for affordable housing are: "land cost + construction cost + profit" break-even pricing, that is, the allocation price is calculated and determined based on the principle of basically covering the allocated land cost and construction cost, plus a reasonable profit.

Based on the details of the acquisition and storage announcements issued by 20 cities before, and referring to the situation in Xi'an and Fuzhou where affordable housing will be allocated at around 50% off the price of commercial housing in the same area, Huatai Securities estimates that in accordance with the principle of breaking even and making small profits, some cities may set the upper limit of the price of acquisition and storage housing at less than 50% of the price of commercial housing in the same location in the future.

Li Yujia said that judging from the current situation of stock acquisition in various places, it is basically still in the process of investigating demand in the early stage. On the one hand, the number of eligible projects is relatively limited, and on the other hand, developers are less willing to sell to state-owned enterprises at low prices. At present, it is still in a state of game between the two sides. Many market players believe that the government will rescue the market and developers through stock acquisition, so they are still waiting for large funds to enter. But from the perspective of capital balance, this is impossible.

It is expected to drive the real estate market in core cities to stabilize first

China Index Academy pointed out that judging from the several models of digesting existing real estate in this round, the core is to convert existing real estate into affordable housing. In the housing security system, affordable housing mainly includes allocated affordable housing and rented affordable housing.

From the perspective of the scope of affordable housing development, whether it is rental or sales-based affordable housing, the pilot projects are concentrated in high-level cities. Ping An Securities pointed out in its research report that during the 14th Five-Year Plan, the country plans to build nearly 9 million rental housing units, and 40 key cities plan to add 6.5 million units. Document No. 14 supports large cities with a permanent urban population of more than 3 million to take the lead in exploring the practice of sales-based affordable housing. Considering that the pilot projects of affordable housing are mainly in high-level cities, the main battlefield for acquisition and storage may be first- and second-tier cities.

According to monitoring by China Index Academy, more than 10 cities have issued notices to collect commercial housing for use as affordable housing. Among them, the housing requirements mainly include the requirement that the building area of ​​a single unit be 120 square meters or less, and some cities require 70 square meters or less.

It should be noted that the 517 new policy mentioned that the central bank set up 300 billion yuan of affordable housing refinancing, with an interest rate of 1.75% and a term of 1 year. The path for issuing affordable housing refinancing is: after financial institutions issue loans to state-owned enterprises, they can apply for refinancing from the People's Bank of China, which will be issued at 60% of the loan principal on a first-come, first-served basis. It can be adjusted and improved in the future according to the implementation situation and needs.

Ping An Securities Research Report pointed out that if only considering the acquisition of existing houses below 90 square meters in 35 core cities, the transaction is completed at 60%-100% of the market price, and the estimated acquisition funds are 491.3-818.8 billion yuan. According to the refinancing of affordable housing, 300 billion yuan of refinancing funds, issued at 60% of the bank loan principal, can drive bank loans of 500 billion yuan. Considering the self-investment of local state-owned enterprises, the final acquisition scale is expected to be greater than 500 billion yuan. Combined with the government's original intention of "ordering according to demand" rather than digesting all small-sized existing houses on the market, if only targeting small-sized existing houses in core cities, 500 billion yuan of bank loans may be relatively sufficient, which is expected to drive the core city real estate market to stabilize first.

Yan Yuejin also believes that first-tier cities have greater advantages in carrying out such work because the market for affordable housing has a strong absorption capacity. In addition, first-tier cities also have good financial conditions. If they actively strive for 300 billion yuan of funds for "purchase instead of construction" in the future, the pace of such acquisitions will accelerate.

Editor-in-charge: Li Weilai Editor-in-chief: Zhang Yuning