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Text: Ren Zeping Team

Introduction

The current real estate situation can be summarized as follows: the policy environment is close to the most relaxed stage in 2014, but the situation is the most severe since the housing reform in 1998, which has seriously dragged down China's economy, employment, local finance and financial stability. This is the result of the superposition of cyclical and policy factors. More forceful rescue measures are needed, otherwise there is a risk of falling into Japan's "lost thirty years" trap. But there are always more solutions than difficulties. As long as substantial and effective measures are taken, China's real estate still has a lot of room for development.

2024In the first half of 2017, government departments at all levels in my country actively optimized housing market policies and promoted the stable operation of the real estate market, especially in the policy directions of commercial property loans, lowering mortgage interest rates, and reducing down payments for home purchases. At the same time, cities such as Shanghai, Guangzhou, Hangzhou, and Xi'an relaxed purchase restrictions. By the middle of the year, the policy environment was close to the most relaxed stage in 2014.

However, the poor performance of the real estate industry was mainly limited by three factors: 1) Financial institutions are still cautious about housing-related loans, and it is difficult for various real estate companies to realize their reasonable financing needs; 2) The demand side is weak, the real estate market is in the bottoming stage of the cycle, asset price expectations are falling, and residents' income expectations are also declining; 3) The progress of real estate projects in some cities is slow, which has hampered the recovery of confidence.

Real estate is the largest pillar industry, which affects more than 60 upstream and downstream industries and tens of millions of jobs. At the same time, real estate is the largest wealth of residents and is related to consumer confidence. If the real estate is stable, the economy and employment will be stable.

The current supply and demand relationship in the real estate market has undergone major changes. What will the real estate situation be like in the second half of 2024? How to break the deadlock?We conducted a scenario analysis of the real estate market in the second half of 2024. Under the neutral scenario: by the end of 2024, the sales area of ​​commercial housing will be -17.1% year-on-year; the newly started area will be -19.3% year-on-year; the completed area will be -17.9% year-on-year; the development investment amount is constrained by the progress of sales and financing recovery, and is expected to be -9.1% year-on-year.

We believe that there is still room for demand in China's real estate market.If effective measures are taken, China will not repeat Japan's "lost thirty years", because there is still a lot of room for urbanization, improvement, and urban renewal in my country in the futureHowever, it is necessary to promote a soft landing as soon as possible and introduce a new model. As the mother of cycles, a stable real estate market will lead to a stable economy.

In the short term, more powerful incremental policies are needed in the second half of the year to reverse the current severe situation. Three measures can save the real estate industry:

1) Establish a large housing bank with a total investment of more than 3 trillion yuan, with low interest rates, long terms and large scale, to purchase the land and commodity housing inventory of developers and use them for rental housing and public housing, achieving multiple goals at one stroke, solving the problems of local finance, developer cash flow and residents' "unfinished buildings", and at the same time solving the housing security system for new citizens, which will be applauded by all sectors;

2) Completely cancel purchase restrictions, return to marketization, release rigid demand and demand for improvement. First-tier cities should seize the "golden September and silver October" time window and take the lead in lifting purchase restrictions in suburban areas and large apartments to boost popularity;

3) Continue to lower interest rates, including lowering the interest rates on second home loans and reducing bank liability costs by lowering the reserve requirement ratio. In addition, we can also consider improving the policy to support families with multiple children to buy houses.

In the long run, we will accelerate the construction of a new real estate model with "urban agglomeration strategy, financial stability, linkage between population and land, real estate tax and rental and purchase" as the core.

If effective measures combining long-term and short-term measures are taken, it is expected to promote a soft landing of the real estate market and contribute to China's economic recovery and employment.

Table of contents

1    Situation: The real estate market is still in the bottoming stage, and the largest pillar industry is dragging down economic recovery and local fiscal

2 Policy: The policy statement in the second half of the year is positive, and a new batch of incremental policies will be prepared and launched in due course

3 Forecast: Real estate market scenario analysis in the second half of 2024

4 The necessity of saving the property market: Real estate is the first pillar of the national economy. Stabilizing the real estate market can stabilize the economy and employment.

5 Three short-term measures to save the real estate industry

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1 Situation: The real estate market is still in the bottoming stage, and the largest pillar industry is dragging down economic recovery and local fiscal

2024In the first half of the year, the national real estate market continued to adjust, policies continued to be relaxed, and the decline in key indicators continued to narrow, but the recovery of real estate transactions was still relatively slow, mainly due to weak expectations on residents' housing prices and income and continued accumulation of inventory.

In terms of new home sales, short-term residents' confidence and ability to buy homes have not yet recovered.complex,The market is still in the bottoming stage。According to data from the National Bureau of Statistics, the cumulative sales area of ​​commercial housing in China from January to June 2024 was 480 million square meters, a year-on-year decrease of 19.0%, and the decline narrowed by 1.3 percentage points compared with the end of May; the cumulative sales amount of commercial housing in China was 4.7 trillion yuan, a year-on-year decrease of 25.0%, and the decline narrowed by 2.9 percentage points compared with the end of last month. From the perspective of the top 100 real estate companies, the total sales of the top 100 real estate companies from January to June 2024 was 2.1 trillion yuan, a year-on-year decrease of 41.6%, and the decline continued to narrow by 3.8 percentage points compared with the previous month. The sales operation amount threshold of the top 100 real estate companies has been reduced by 41.4% to 3.32 billion yuan compared with the same period last year.

Second-hand housing sellernoodle,The recovery signal of the second-hand housing market is obviously better than that of the new housing market。According to our monitoring, from January to June 2024, the second-hand housing transactions in the 17 key cities totaled 40.826 million square meters, down 12.6% from the same period last year, and the decline narrowed by 4.2 percentage points from the previous month. From a single month perspective, the second-hand residential transactions in the 17 key cities monitored in June 2024 totaled 7.509 million square meters, up 0.2% month-on-month and 12.9% year-on-year. Second-hand housing transactions in June performed outstandingly, with positive growth both month-on-month and year-on-year, and the year-on-year growth rate ended the "four consecutive declines" and turned positive, setting a new high for transactions this year.

The current diversion of housing demand by second-hand houses is a short-term phenomenon driven by multiple factors such as policies and cycles.. According to the data from China Index Academy, from the perspective of proportion, the sales area of ​​second-hand houses accounted for 26.3% of the total sales area from January to June 2024, an increase of 3.8 percentage points from the whole year of 2023. In the past three years, the proportion of domestic commercial residential existing housing sales area in June has gradually increased. In June 2022, the sales of second-hand houses accounted for only 15.7%. The main reasons for the diversion of new housing demand by second-hand houses are: 1) After the implementation of the "package" policy of the 5.17 real estate market, core first- and second-tier cities have followed up and implemented it. Some policies directly target second-hand houses (such as: the scope of non-Shanghai singles to purchase second-hand houses has been expanded to within the outer ring) and the policy effects have gradually emerged; 2) Residents' willingness to improve housing quality has increased, and they can only buy new ones by selling old ones. Residents have turned from demanders to suppliers, and the number of second-hand houses listed has continued to rise. 3) The second-hand housing market is in a stage of exchanging price for volume, and with no delivery concerns, second-hand houses in core areas are more popular.

In terms of prices, the month-on-month growth rate of sales prices of newly built commercial housing in 70 large and medium-sized cities in the first half of 2024 continued to be negative, and the prices of new houses are still in the bottoming out stage.According to data from the National Bureau of Statistics, in June 2024, the sales price of newly built commercial housing in first-tier cities fell by 0.5% month-on-month, a decrease of 0.2 percentage points from the previous month. Beijing, Guangzhou and Shenzhen fell by 0.6%, 1.2% and 0.7% respectively, and Shanghai rose by 0.4%. The sales price of newly built commercial housing in second-tier cities fell by 0.7% month-on-month, the same as the previous month. The sales price of newly built commercial housing in third-tier cities fell by 0.6% month-on-month, a decrease of 0.2 percentage points from the previous month, which was the first narrowing of the decline in the first half of 2024.

In terms of inventory,2024In the first half of the year, my country's real estate industry faced the problem of "digesting existing real estate".Since the "inventory" policy was launched, the policy effect has been slightly apparent.As of June 30, 2024, the total area for sale in 14 sample cities in my country was 81.473 million square meters, a year-on-year increase of 0.8%; the average sales cycle was 15.2 months, a year-on-year increase of 4.8 months. From the perspective of key cities, as of June 30, 2024, the sales cycles of Beijing, Shanghai, Guangzhou and Shenzhen were 26.6, 8.1, 18.4 and 21.1 months respectively. Except for Shanghai, the sales cycles of the other three cities were at a relatively high level. Compared with the same period in May, the changes were +0.92, +0.26, -2.54 and -2.34 months respectively. It can be seen that after the new policy on May 17, the new policies of various localities were released, which helped Guangzhou and Shenzhen to destock. Compared with last year, the sales cycles of Beijing, Shanghai, Guangzhou and Shenzhen changed by +10.64, +3.88, +3.41 and +7.71 months respectively. The overall inventory situation in first-tier cities still needs to be destocked, and comprehensive relaxation is still the general trend.

2 Policy: The policy statement in the second half of the year is positive, and a new batch of incremental policies will be prepared and launched in due course

2.1    Macroeconomic policies: The reform, development and stability tasks in the second half of the year are very heavy, and macroeconomic policies must continue to be more effective and powerful

Macroeconomics, 2024Constrained by the severe external environment in the first half of the year, the pace of economic recovery in my country has slowed down, and there is still room for policy efforts; my country's GDP in the first half of 2024 increased by 5.0% year-on-year; of which real GDP in the second quarter increased by 4.7% year-on-year, a slight decline from the first quarter.

The Third Plenary Session of the 18th CPC Central Committee expressed positively on macroeconomic policies, and the Political Bureau meeting held in July expressed even more positively: "The tasks of reform, development and stability in the second half of the year are very heavy", "macroeconomic policies must continue to be exerted and be more powerful", and "a batch of incremental policy measures should be reserved early and introduced in a timely manner".In the transition phase between old and new drivers, it is still necessary to maintain a certain economic growth rate and solve problems in the process of development. It is recommended to continue to reduce the reserve requirement ratio and interest rates to lower the actual interest rate. The monetary policy of a major country should be based on self-reliance. Stabilizing the economy and employment is the first goal. There is no need to worry about exchange rate constraints and too low long-term debt interest rates. After the economy warms up, the exchange rate and interest rate will naturally return to the normal range;Second half of 2024，Available throughFiscal expansion will expand total demand, while increasing support for the new economy and new quality productivity, with monetary coordination, and rapid, vigorous and focused implementation. It will solve employment problems, increase wage and income expectations, smooth the "consumption-production" cycle, and enhance the vitality of micro-subjects.

1) In terms of fiscal policy, in terms of total volume, fiscal policy will be moderately strengthened.The scale of broad fiscal expenditure this year is "4.06 trillion deficit + 3.9 trillion local special bonds + 1 trillion new ultra-long-term special government bonds not included in the deficit + 1 trillion special government bonds issued in the fourth quarter of last year + PSL".In terms of pace, the issuance progress was slow in the first half of the year, but it is expected to accelerate later.All the funds for issuing an additional 1 trillion yuan of special government bonds last year have been allocated, and the issuance of special bonds has been slow. As of the end of July, 1.774939 trillion yuan of new special bonds had been issued, and the issuance progress was only faster than in 2021.

We expect fiscal policy to accelerate in the third and fourth quarters.: First, according to the National Development and Reform Commission, "all additional treasury bond projects will be pushed to start construction before the end of June this year"; second, special bonds are expected to accelerate in the second half of the year, and driven by steady growth, the third quarter is expected to become a window period for concentrated issuance of special bonds. Third, ultra-long-term special treasury bonds may be gradually invested in the second half of the year to form an increase; ultra-long-term special treasury bonds have been studied and drafted.

2) In terms of monetary policy, the 722 interest rate cut marks a new round of easing cycle and stable growth cycle, and the cost of corporate financing and residents' credit has steadily declined.In January and February 2024, the monetary policy is relatively loose, mainly focusing on stabilizing growth momentum and micro-expectations, including a 0.5 percentage point reduction in the reserve requirement ratio, a reduction in the re-loan and re-discount rate, and a 25bp reduction in the 5-year LPR; since March, the central bank has not carried out quantitative easing operations, and the policy focus has shifted to stabilizing long-term interest rates, with policy characteristics slightly adjusted to neutral. On July 22, OMO, LPR, and SLF were uniformly reduced by 10bp; on July 25, the central bank announced a 20bp reduction in the MLF rate, and it was rare to carry out MLF operations twice in a month; at the same time, the six state-owned banks announced a reduction in the deposit listing rate, ranging from 10-20bp depending on the deposit term. Although the economy is still facing multiple target constraints, it can be seen that the policy is actively making room for maneuver, releasing clear signals of stabilizing growth, and boosting market confidence.

2.2 Real estate industry policy: digesting existing stock, optimizing incremental growth, and purchasing existing commercial housing for use as affordable housing

In terms of real estate policies, at the central level, the main tone of real estate policies in the first half of 2024 will continue to be loose. Many ministries and commissions have repeatedly clarified the direction of optimizing real estate policies. Since the Politburo meeting in April, the policy focus has shifted to "destocking."On May 17, the regulatory authorities issued a "package" of new policies, with four arrows fired simultaneously: reducing the down payment ratio, lowering the interest rate of provident fund loans, canceling the lower limit of commercial loan interest rates, and planning to set up 300 billion yuan of affordable housing re-loans, which had a significant impact on market expectations. On June 7, the State Council Executive Meeting mentioned "destocking" again, sending a more positive signal to the market. On July 18, the Third Plenary Session of the 18th CPC Central Committee proposed the latest policy direction for building a new model of real estate development in terms of renting and purchasing, relaxing purchase restrictions based on city-specific policies, real estate taxes, and linking people and land.

On the demand side, local policies continue to be implemented.According to our monitoring, in the first half of 2024, about 180 provinces, cities and counties across the country issued more than 360 policies, and the frequency of policies in various regions remained high in the second quarter.Regarding purchase restrictions,The restrictive policies in most cities have been completely lifted. Currently, the four first-tier cities have lifted housing purchase restrictions in some areas. Shanghai has relaxed second-hand housing within the outer ring road, Beijing has relaxed restrictions outside the fifth ring road, Shenzhen has relaxed restrictions in non-core areas, and Guangzhou has relaxed purchase restrictions on housing units larger than 120 square meters. Most second-tier cities have fully lifted purchase restrictions.Regarding loan restrictions,After the 5.17 policy, first-tier cities all lowered their down payment ratios and mortgage interest rates. Among them, Guangzhou's down payment ratio dropped to 15% for the first set and 25% for the second set. The magnitude of the reduction was the highest among the four first-tier cities.

On the supply side, in terms of real estate financing, in the first half of 2024, the regulatory authorities established a real estate financing coordination mechanism, and repeatedly emphasized the need to improve the mechanism and strictly implement it.On January 12, the Ministry of Housing and Urban-Rural Development and the State Administration of Financial Supervision required all cities above prefecture level to establish a real estate financing coordination mechanism, build a communication platform between government, banks and enterprises, and promote the precise connection between real estate enterprises and financial institutions. From February to June 2024, the Ministry of Housing and Urban-Rural Development and other departments emphasized the real estate financing coordination mechanism in multiple meetings and notices. The "white list" mechanism has played a certain role in improving the inflow of funds on the credit side of real estate enterprises. According to the State Administration of Financial Supervision and Administration, as of May 16, commercial banks have approved a loan amount of 935 billion yuan for "white list" projects in accordance with the internal approval process. With the repeated emphasis on meeting the financing needs of real estate enterprises at the central level, financing for private real estate enterprises and mixed-ownership real estate enterprises is expected to be substantially strengthened.

3 Forecast: Real estate market scenario analysis in the second half of 2024

Looking ahead to the second half of 2024, with the macro environment still uncertain, we comprehensively consider multiple dimensions, such as changes in macroeconomic policies, restoration of confidence among real estate companies and residents, etc. Based on the existing data in the first half of 2024, we adopt three perspectives, optimistic, neutral, and pessimistic, to present the future trend of real estate.

Under the neutral scenario: In 2024, it is expected that the overall supply and demand will continue to narrow in both directions, with the sales area of ​​commercial housing decreasing by 17.1% year-on-year; the newly started area will continue to hover at a low level, and is expected to be -19.3% year-on-year; the completed area is constrained by the decline in the newly started area in 22 and 23, and the shrinking scale of the completed reserve, and is expected to be -17.9% year-on-year; the development investment amount is constrained by the progress of sales and financing recovery, and is expected to be -9.1% year-on-year.

1Optimistic scenario

Macroeconomics:In the second half of 2024, unexpectedly favorable policies will be introduced, such as multiple interest rate cuts and reserve requirement ratio cuts, and the economy will enter a period of transformation of growth momentum from domestic and foreign demand. The internal and external environment and conditions facing development will be significantly improved, the GDP growth rate will return to a steadily rising range, and residents' income expectations will improve.

Real estate industry:

1) Demand sideLed by the core first-tier cities, China has completely lifted purchase restrictions, significantly reduced interest rates on existing first and second home mortgages, further increased provident fund loan amounts, reversed residents' wait-and-see sentiment, reversed real estate price expectations, and significantly increased sales.

2) Supply side, favorable policies for high-quality real estate companies' financing have been added, the "white list" for real estate companies' financing has been quickly implemented and the effect is obvious, the reasonable financing needs of real estate companies of different ownerships have been fully met, the disposal of suspended projects in various places has been significantly accelerated, and housing banks have been established to solve the inventory problem of real estate companies. The implementation effect of the 300 billion yuan affordable housing refinancing is obvious, the total amount of subsequent refinancing funds continues to increase, the cost of refinancing funds continues to decline, the developers' land and commercial housing inventory have been acquired, and a dual-track housing supply system of "affordable housing + commercial housing" has been established. The land auction rules in various places have comprehensively relaxed price restrictions, most real estate companies have regained confidence, and their enthusiasm for land acquisition has increased.

2Neutral scenario

Macroeconomics:In the second half of 2024, economic policies will maintain the current pace, with slight increases and slow relaxations. The interest rate and reserve requirement ratio cuts will be similar to those in 2023, with no unexpected large-scale relaxations. The central government will maintain the same deficit rate as last year in 2024. The economy will maintain the current level of prosperity in 2024 and residents' income will gradually stabilize.

Real estate industry:

1) Demand side, real estate regulation policies continued to be relaxed, but there was no unexpected relaxation, such as the gradual relaxation of purchase restrictions in the peripheral areas of first-tier cities and large luxury houses, and the issuance of housing subsidies in low-level cities. The willingness of some residents to buy houses has been restored, and real estate price expectations have improved slightly. The market has recovered in a differentiated manner. Sales in core cities with population inflow have rebounded slightly, but the real estate market in most cities with population outflow and oversupply is still sluggish.

2) Supply sideIn terms of financing policies to help distressed real estate companies, such as the "white list" of financing and the implementation of 300 billion yuan of affordable housing re-loans, the positive signals are clear but there is no unexpected increase. The reasonable financing needs of real estate companies of different ownership structures have been basically met, the disposal of suspended projects in some cities has been alleviated, and the confidence of high-quality real estate companies in investing in land has been restored. Supporting funds for affordable housing development loans, "normal and emergency" public infrastructure construction loans, and special loans for urban village renovation continue to be put in place. The "three major projects" will provide additional growth for fixed asset investment in the second half of 2024, but the actual pull is limited and has not exceeded expectations.

3, Pessimistic scenario (it should be noted that the probability of this happening is low, but we should also prevent the risk of a hard landing and take precautions before it happens)

Macroeconomics:In the second half of 2024, overall uncertainty in my country's economy will still exist, the strength of macroeconomic policies will be weaker than expected, and after a brief recovery, the economy will enter a period of slow growth or even a sharp decline, and residents' income may further decline.

Real estate industry:

1) Demand side, real estate regulation policies did not exceed expectations or maintained the status quo, and the real estate relaxation policies issued by various regions failed to effectively boost the market. Under the influence of unstable residents' income expectations and expectations of continued decline in housing prices, wait-and-see sentiment continued and the national commercial housing sales area declined.

2) Supply side, the financing policy for real estate enterprises remains the same, and financing problems involving private enterprise debt problems and potential risks still exist. The implementation of the 300 billion yuan affordable housing refinancing is slow, the scale of storage for rental housing and affordable housing is lower than expected, and relevant policies are no longer optimized or increased. The operating cash flow gap of real estate enterprises in trouble continues to expand, the delivery of suspended projects in various places is slow, the confidence of real estate enterprises continues to weaken, and the enthusiasm for land acquisition remains conservative.

Under the neutral scenario, we make the following judgments on the expected scale of core real estate indicators at the end of 2024 based on the various industry indicators in the first half of 2024:

1) In the second half of 2024, the macro-economy will enter a recovery channel, residents' willingness to buy houses will recover, and the re-lending and storage "destocking" will proceed as scheduled, and the purchase restrictions in the peripheral areas of first-tier cities will be relaxed.The national commercial housing sales area may have bottomed out, with the absolute sales volume reaching approximately 930 million square meters by the end of 2024.

2) In the second half of 2024, the scale of new construction by real estate companies will still be constrained by factors such as the slow recovery of new home sales and a large amount of unsold inventory.It is difficult for new construction to change the downward trend. By the end of 2024, the absolute scale of new construction will be about 770 million square meters.

3) In the second half of 2024, factors such as the continued implementation of the "guaranteed delivery of buildings" policy, the "white list" of real estate financing, the 300 billion yuan re-loan storage to improve the cash flow of real estate companies, and the increase in home buyers' preference for existing homes are expected to continue to provide certain support for completion.The absolute scale to be completed by the end of 2024 is expected to be approximately 820 million square meters.

4) In the second half of 2024, factors such as a decline in new construction starts and over-peak construction may continue to restrict the recovery of construction project investment. The trend of shrinking land transactions in the past two years has not changed, which may lead to a further decline in land acquisition costs. However, the transformation of urban villages and the construction of affordable housing will be strengthened.By the end of 2024, the investment in real estate development will be about 10.0 trillion yuan。

Overall, the neutral scenario is not optimistic. Real estate will be a drag on economic recovery. To achieve healthy and stable development of the industry and guard against financial risks, in the second half of 2024, we need to increase our efforts in the short term to break the impasse and cooperate with the long-term mechanism of real estate to form a "combination punch."

4 The necessity of saving the property market: Real estate is the first pillar of the national economy. Stabilizing the real estate market can stabilize the economy and employment.

4.1    There is still room for the medium and long-term real estate market

We have been tracking and researching in the "China Housing Stock Report" series for six consecutive years and found that, taking into account the urbanization process, improvement demand, urban renewal, etc., the future demand in China's real estate market will decline, but there is still room for development in the medium and long term.

Some market opinions are pessimistic about my country's future housing demand, believing that my country's housing demand will continue to fall to a lower level, causing market concerns.However, according to our estimates, from 2024 to 2030, my country's total housing demand will be about 6.5 billion square meters, with an average annual new housing demand of about 930 million square meters per year, and will not fall sharply to a lower level.

We estimate that in 2024, my country's annual new urban housing demand will be about 940 million square meters, of which rigid demand is 340 million square meters, improvement demand is 360 million square meters, and renewal demand is 240 million square meters; it is expected that by 2030, my country's housing demand will slowly decline to 910 million square meters, of which rigid demand is 250 million square meters, improvement demand is 370 million square meters, and renewal demand is 290 million square meters.From a structural perspective, rigid demand, improvement demand, and renewal demand will account for 29.0%, 41.1%, and 29.8% respectively in 2024-2030. Improvement demand has become the largest demand support for my country's housing market.

4.2 Real estate is the first pillar of the national economy. Stabilizing real estate production can stabilize the economy and employment.

2023Since 2017, China's economy has been facing downward pressure from the interweaving and superposition of multiple factors, among which the internal factors are mainly related to real estate.Since the first quarter of 2023, after the economic impulse rebound, it has shown a long-term trend of mild recovery and bottoming out. Judging from the price and employment indicators, the current economic growth rate is lower than the potential growth rate.If the real estate industry is stable, the economy will be stable. As the largest pillar industry, real estate links more than 50 upstream and downstream industries. The downward trend of real estate investment affects the balance sheet repair of residents and corporate sectors, as well as "confidence" issues.

From the perspective of GDP added value of real estate industryGenerally speaking, industries that account for more than 5% of the economy can become pillar industries of the economy. In 2023, affected by the downward cycle of the real estate industry and major changes in the supply and demand relationship in the real estate market, the proportion of the real estate industry in GDP was adjusted down to 5.9%, but it was still the same as the level in 2014.

From the perspective of real estate development investment,Between 2000 and 2023, real estate development investment increased from RMB 490.2 billion to RMB 11 trillion, with an average annual compound growth rate of 14.5%. The proportion of real estate development investment in fixed asset investment increased from 14.9% to 22.0%, which means that more than one-fifth of the funds invested in fixed assets nationwide each year are invested in the real estate industry.

From the perspective of upstream and downstream industries, real estate drives the output value of dozens of upstream and downstream industrial chains. Through investment and consumption, real estate not only directly drives the manufacturing sectors related to housing, such as building materials, furniture, and wholesale, but also significantly drives the tertiary industries such as finance and business services.According to the latest input-output table of the National Bureau of Statistics in 2020, we estimate that the broad real estate industry completely drives the GDP of the upstream and downstream industrial chains by 10.0 trillion yuan and directly drives the GDP of the upstream and downstream industrial chains by 2.4 trillion yuan. In terms of industries, the GDP added value driven by the broad real estate industry in monetary finance, retail, steel rolling, and gypsum cement ranks first, at 810.7 billion yuan, 423 billion yuan, 352.7 billion yuan, and 282 billion yuan, respectively.

From the perspective of solving employment problems, the rapid development of my country's real estate industry in history has provided a large number of employment opportunities for society.The real estate industry provides a large number of jobs in my country's real economy. Although the real estate industry has faced major adjustments in the past two years, the number of people employed in the property industry has grown against the trend. It is estimated that by 2023, the number of people employed in my country's real estate industry will reach 13 million, a three-fold increase compared to 2004. From 2004 to 2018, the number of people employed in my country's real estate industry increased from 3.96 million to 12.64 million, and it is estimated that by 2023, the number of people employed in my country's real estate industry will reach 13 million.

4.3 China’s property market has the conditions to avoid repeating Japan’s “lost thirty years”

China's urbanization rate is 66.2%, and with the demand for improvement, there is still much room for improvement. As long as the right measures are taken, China will not repeat Japan's balance sheet recession and lost three decades.According to data from the United Nations Population Division, at the beginning of the Japanese economic crisis in 1990, Japan's urbanization rate was as high as 77%, while my country's urbanization rate was 66.2% in 2023. my country's urbanization still has a lot of room for development and improvement, and the future development of the real estate market is still supported. Looking back at Japan's crisis response experience, after the bursting of the Japanese real estate bubble in the 1990s, the Japanese government's regulatory attitude was not firm enough and the intensity was not strong enough. It adopted a toothpaste-squeezing loose policy, which failed to effectively block the spiral decline of asset prices-bank credit-price levels, and eventually produced chronic deflation. However, the United States decisively implemented measures in the face of the 2008 crisis, implemented large-scale QE, prevented the crisis from spreading, and the economy quickly recovered. At present, it is appropriate to lower interest rates, relax purchase restrictions, and housing banks to stabilize the property market, completely reverse expectations, and boost confidence.It can be seen that the effect of policy relaxation in a toothpaste-squeezing manner is short-term pulse-like. Truly effective policy relaxation must boost confidence in one go.

5 Three short-term measures to save the real estate industry

In the short term, three measures can save the real estate industry: 1) Establish a large housing bank with a total of more than 3 trillion yuan, acquire the land and commodity housing inventory of developers, and use it for rental housing and affordable housing, which will achieve multiple goals at one stroke, solve the problems of local finance, developer cash flow, and residents' "unfinished buildings", and solve the housing security system for new citizens at the same time, which will have the effect of applauding from all walks of life; 2) Completely cancel the purchase restrictions, return to marketization, release rigid demand and improvement demand, and first-tier cities should seize the time window of "Golden September and Silver October" to take the lead in lifting the purchase restrictions on suburban and large-sized houses to boost popularity; 3) Continue to cut interest rates, including reducing the interest rate of second-home mortgage loans, and reduce bank liability costs by lowering the reserve requirement ratio. In addition, it is also possible to consider improving the support policy for multi-child families to buy houses. Real estate is the largest pillar industry. If real estate is stable, the economy, employment and finance will be stable.

1) Establishment of a large housing bank to collect and store

It is possible to consider setting up a housing bank to acquire developers' land and commercial housing inventory for rental housing and affordable housing.After obtaining funds from commercial banks, local governments pay real estate developers to ease their financial pressure. Developers are required to deliver buildings after receiving funds, which can prevent unfinished projects. The improved cash flow of real estate companies can be used to acquire land, which is beneficial to local finances. On the other hand, the acquired inventory of commercial housing and land can be used for rental housing and affordable housing, which will help improve people's livelihood and realize a new model of renting and purchasing.

The cost of re-lending funds still needs to be reduced and the total amount of funds needs to continue to increase to promote the implementation of the government's storage policy.On May 17, the central bank set up 300 billion yuan of affordable housing refinancing, which is in the right direction, but the scale of 300 billion yuan is relatively small. It may take about 2 trillion yuan within two years to complete the establishment of my country's housing security system. The 1.75% interest rate plus the supporting financing and operation and maintenance costs have a high overall cost. The current rental return rate is less than 2%, and the local acquisition motivation is insufficient. The cost of refinancing tools can be reduced and the proportion of supporting funds can be reduced to cover the cost of funds and increase local enthusiasm.

2) First-tier cities have completely lifted purchase restrictions

Judging from international experience, the real estate markets in core cities of typical overseas countries have long been open to domestic and global buyers, with no purchase or sales restrictions. They follow market principles and are regulated through prices and taxes rather than artificial administrative means.The continuous concentration of population and industry in metropolitan areas and urban agglomerations is a common experience of developed countries. The real estate market in core cities is not subject to purchase restrictions, which conforms to the trend of population inflow to metropolitan areas and urban agglomerations, and is conducive to promoting the flow of talents and enhancing the competitiveness of cities. The supply of land can be coordinated with the "people-land linkage" to alleviate the historical problems of high housing prices in first- and second-tier cities and high inventory in third- and fourth-tier cities.

Compared with overseas, the housing purchase policies in core areas of my country's first-tier cities such as Beijing are much more restrictive.Currently, single people with Beijing residence and no property under their name are limited to purchasing one house; married families with Beijing residence are limited to purchasing two houses per family (husband and wife and minor children); non-Beijing families who have met the personal income tax/social security requirements for five consecutive years and do not own a property in Beijing are limited to purchasing one house. In addition, after April 3, 2024, the above families and individuals can purchase an additional house outside the Fifth Ring Road. (Reference"Should first-tier cities lift restrictions on home purchases?"）

First-tier cities can start with the outer suburbs to relax purchase restrictions, and ensure that "high-end housing has a market and low-end housing is guaranteed". Core urban areas can relax restrictions on large-sized housing first, and small-sized housing with rigid demand can be relaxed cautiously.Guangzhou officially lifted the purchase restrictions on homes over 120 square meters in January this year, essentially opening up the luxury housing market to buyers across the country. Correspondingly, small-sized homes in core urban areas of core cities and other rigid demand products need to be released with caution.The current property market is weak, and the real estate market has shifted from "preventing overheating" to "preventing overcooling". There is no need to worry about the cancellation of purchase restrictions causing the market to overheat. Now is a good time to relax purchase restrictions.In the medium and long term, after the market stabilizes, it is possible to consider achieving a balance between real estate supply and demand through the "people-land linkage". The "uneven" land finance in various localities can be adjusted through fiscal transfer payments.

3) Reduce the interest rate of existing mortgage loans

It is necessary to continue to lower the interest rates on existing mortgages, including the interest rates on second mortgages, and cooperate with the reduction of relevant taxes and fees to reduce the cost of buying a house and reduce the burden on residents.With the implementation of the new real estate policy on May 17, the lower limit of mortgage interest rates in many cities has been cancelled, and mortgage interest rates have entered the "3 era". According to the Shell Research Institute, the average mainstream first mortgage interest rate in 100 cities in May 2024 was 3.45%, a decrease of 12bp from April; the average mainstream second mortgage interest rate was 3.90%, a decrease of 26bp from April. However, some existing mortgage interest rates are still around 4%, and the interest rate spread between new loans and existing loans has widened, which has invisibly increased the loan pressure on residents and increased early loan repayments.It is still necessary to promote the reduction of existing mortgage interest rates. The first mortgage interest rate was lowered before, and the social response was very good. The second mortgage interest rate should also be lowered. This is good governance. In order to ease the pressure on the net interest margin of banks, targeted reserve requirement ratio cuts and continued reductions in deposit interest rates can be used to cooperate.

4) Support for housing purchase for families with two or three children

Consider improving policies to support home purchases for families with many children, such as issuing housing subsidies and lowering mortgage interest rates for families with many children.Since the three-child policy was relaxed, various regions have actively improved the supporting services for childbirth, and reduced the cost of childbirth, upbringing and education from aspects such as childbirth and childcare subsidies, personal tax reductions and exemptions, and housing priority protection. However, the support needs to be strengthened and the implementation needs to be improved. Since the second half of 2023, the frequency of local governments issuing relevant childbirth and childcare subsidies has decreased, and the implementation of some subsidy policies needs to be improved. The main reason is that local governments lack financial resources and motivation. In the long run, the additional population brought about by the multi-child policy will directly increase the demand for products and services such as houses and cars, and will bring the burden of raising children to families.Giving policy preferences to families with children in buying houses and reducing direct costs of raising children will help expand domestic demand, stabilize growth, and stabilize employment in the short term, and help boost fertility levels, enhance human capital, and increase economic and social vitality in the long term, achieving multiple goals at one stroke.

In the long run, we can accelerate the construction of a new real estate model with "urban agglomeration strategy, financial stability, linkage between population and land, real estate tax and renting and purchasing" as the core.

If a combination of long-term and short-term measures are taken, it is expected to promote a soft landing of the real estate market and contribute to China's economic recovery and employment.

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