news

Original by Liu Xiaobo

How much real money support has the Chinese real estate industry received from the beginning of the year to now?

An important data was released: According to the Financial Supervision Bureau,Commercial Banks5,392 real estate "white list" projects have been approved.The amount of financing approved is nearly 1.4 trillion yuan.

The 1.4 trillion yuan will be directly transfused to specific projects, which will help ensure delivery and reduce the motivation of developers to cut their positions and exit the market.

In addition, the central bank announced the issuance of 300 billion yuan in re-loans to support commercial banks in issuing loans for "purchasing and storing inventory houses as commercial housing."A total of 500 billion yuan in commercial loans can be leveraged, plus the principal used by local governments and state-owned enterprises to acquire and store existing housing (at least 100 billion yuan), an additional 600 billion yuan in funds can be leveraged.

In addition, according to data from the China Index Academy, from January to June 2024, China's real estate industry will achieveBondsFinancing was 279.16 billion yuan (including overseas). By the end of July, the total amount of bond financing should exceed 300 billion yuan.

At present, the central bank has not yet released the "Financial Institutions Loan Allocation Report" for the second quarter of 2024. If the increase in development loans and personal mortgages is included,The real estate industry has earned at least 2.3 trillion to 2.6 trillion yuan in the first seven months of this year.

What impacts has this more than 2 trillion yuan of funds had on real estate, and how will the situation evolve in the future?

Let’s first look at “white list financing”.

In January this year, the Ministry of Housing and Urban-Rural Development and the State Administration of Financial Supervision jointly issued the "Notice on Establishing a Urban Real Estate Financing Coordination Mechanism", requiring all cities at the prefecture level or above to establish this mechanism.

In essence, the financial power to "save the market" has been delegated to local governments.. Local governments have set up leading groups for the "real estate financing coordination mechanism", with local city leaders in charge of real estate as group leaders, and local housing and construction bureau directors and leaders of branches of the Financial Supervision Administration joining the group. Local governments will draw up a white list of real estate projects that need financing support, and branches of the Financial Supervision Administration will review and hand it over to commercial banks for execution.

In early April this year, official media reported that as of March 31, among the "white list" projects pushed by various regions, 1,979 projects had obtained a total of 469.03 billion yuan in bank credit, and 1,247 projects had obtained loans of 155.41 billion yuan.

Today, the official announcement stated that "the amount of financing approved is nearly 1.4 trillion yuan."

Therefore, in the second quarter, the incremental development loans obtained by developers exceeded 1 trillion yuan.

In the whole year of 2022, real estate development loans only increased by 0.68 trillion yuan; in the whole year of 2023, they only increased by 0.19 trillion yuan; and in the first quarter of this year, they increased by 0.88 trillion yuan.

If we add the 1 to 1.25 trillion yuan of whitelist financing that increased in the second quarter,Development loans increased by about 2 trillion in the first half of this year!

This is a huge difference compared to the increase of 0.19 trillion last year and 0.68 trillion the year before.

This shows how great the efforts to save the property market this year are.

This year, local governments and state-owned enterprises are also encouraged to purchase and store existing commercial housing as affordable housing. As mentioned earlier, this will bring in 600 billion yuan in incremental funds.

Why hasn’t the real estate market stabilized yet? Why are house prices in many cities still continuing to slowly decline?

The main reasons are:

First, facing this round of economic downturn, the authorities adopted different response strategies instead of flooding the market with money.The current rate of money printing (Broad moneyM2The year-on-year growth rate was only 6.3%, which is quite different from the 27.7% in 2009 when responding to the global financial crisis.

Why not flood the market with money? The main purpose is to promote economic transformation and upgrading, deleverage, and eliminate outdated production capacity. They are trying to help the Chinese economy switch track by "living a tight life for a few years."

Second, this round of adjustment has the nature of "balance sheet recession" and is a large-scale adjustment of the real estate industry. It is unprecedented since the comprehensive housing reform in 1998.Coupled with the major changes unseen in a century (changes in Sino-US relations) and the need to further strengthen fiscal policy, the market as a whole is still relatively cold.

However, we must also realize that without the support of more than 2.3 trillion yuan in real money, as well as the continuous loosening of the real estate market (relaxing or canceling purchase restrictions, etc.) and targeted interest rate cuts (canceling the floor of mortgage interest rates), the real estate market would be even worse.

After continuous transfusions and mine clearance, the property market has shown signs of partial recovery.For example, in Shanghai and Xi'an, the year-on-year price of new homes has rebounded. In the core areas of first-tier cities, well-equipped residential buildings have refused to fall, and the price of school-district housing in Shenzhen has rebounded. Shanghai's luxury homes and old, dilapidated and small homes are hot sales, all of which are signs of an improvement in the property market.

The year-on-year growth rate of "funds in place for real estate development enterprises" also showed a narrowing decline:

The most dangerous time for real estate is passing. But the improvement of the situation is not V-shaped, but L-shaped.

In recent days,US Dollar IndexContinue to set new lows and passFedA signal of an impending rate cut.

Recently, many readers have left messages asking about the probability of the Federal Reserve cutting interest rates in September, and are worried that the rate cut may not be implemented.

My opinion is that the probability of a rate cut in September is more than 70%, and the probability of a rate cut this year is 100%.

In the past period of time, many developed countries or regions have announced interest rate cuts, such as the Eurozone, the United Kingdom, Canada, Switzerland, Sweden, New Zealand, etc. If the United States will not cut interest rates in the next six months, why are they so aggressive?

In recent days, the euro, pound sterling and renminbi have continued to appreciate against the US dollar. For example, the euro:

Changes in the foreign exchange market also mean that the Federal Reserve is about to cut interest rates.

When the Federal Reserve began to cut interest rates, China had room to further cut interest rates.

Previously, in order to avoid a serious inverted interest rate between China and the United States, which would trigger hot money outflows, China's LPR rate cuts were relatively slow, with only a small targeted rate cut for the real estate sector (mortgage rates have been reduced by about 100 basis points in the past year), allowing the first mortgage rate to be 60 to 70 basis points lower than the benchmark rate.

As the Federal Reserve begins a cycle of interest rate cuts, China's LPR rate may fall by another 80 to 100 basis points in the next two years, and the interest rate on first-home mortgages is expected to fall to around 2%, or even below.

As for the future of the property market, my judgment is as follows:

Before the end of this year, the bottom of the supporting real estate projects in the core areas of first-tier cities will be reached, which is also a good opportunity to buy. If you buy now, you can fix the discount (reduction) part of the mortgage. After the first quarter of next year, the LPR rate will drop significantly, and the overall mortgage rate will also drop, but the discount may gradually narrow.

The core areas of strong second-tier cities will gradually bottom out after mid-2025; the core areas of ordinary second-tier cities may not bottom out until mid-2026; as for third-, fourth- and fifth-tier cities, it is meaningless to predict when they will bottom out or not, so just remember not to invest in these places.

In the future, when buying a house, you can only choose a house in the core area of ​​the 20 cities with the highest total amount of funds (as well as the central cities in areas with extremely special policies, such as Haikou and Sanya). The suburbs of first-tier cities are all becoming like Hegang, not to mention the suburbs of second-tier cities.

Houses in third-, fourth- and fifth-tier cities basically have no investment value. In many small and medium-sized cities, the price of single-family and duplex villas in the suburbs has dropped to 2 million to 3 million yuan per unit, and may be halved in the future. It will be normal for housing prices to be lower than the cost of decoration. Once someone buys a house and does something disgusting in it, the value of the entire community will be directly reduced to zero, and you will not even have the courage or interest to go into the community to take a look.