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Text: Ren Zeping Team

Introduction

After a pulsed recovery in June and July, real estate sales fell in August due to the lack of follow-up policies.Since the 517 new policy, the real estate market has picked up. In June, the transaction volumes of new and second-hand houses increased month-on-month and were stronger than seasonal, leading to a narrowing of the year-on-year decline in housing transactions in the first half of the year. However, due to the lack of follow-up policies, real estate transactions have declined significantly since July and August, and the effect of boosting new homes has been limited.

From the perspective of forward-looking indicators, according to the Shell New Home Site Index and the Second-hand Home Viewing Index, the 517 policy package only brought about a "pulse recovery" in forward-looking indicators in May and June. The momentum of the first-tier cities' recovery in June failed to continue, and the heat of the front-end real estate market fell again in July.

The market is "trading price for volume", with rigid demand gradually entering the market, mainly second-hand houses, and the new housing market is under pressure.1) Housing sales are “trading price for volume”, and prices are still bottoming out; 2) With the entry of rigid demand, the transaction volume of low-priced, high-cost-performance housing has picked up; 3) Second-hand housing diverts housing demand, and new housing is still under pressure.

"Golden September and Silver October" is traditionally the peak sales season, benefiting from seasonal factors, concentrated marketing by real estate companies, and the introduction of policies.Judging from the average monthly transaction share from 2010 to 2023, the residential transaction area in September and October accounted for 10.1% and 8.4% of the whole year, ranking 3rd and 6th in the monthly ranking of the whole year respectively.Even though there was a tail-end rally in December with people returning to their hometowns to buy property, more than one-third of real estate transactions in the second half of the year were concentrated in September and October.In 2022 and 2023, the residential transaction area in the "Golden September and Silver October" accounted for 34.8% and 35.7% of the transactions in the second half of the year.

Now is an important time window for the introduction of rescue policies. We must seize the opportunity of "golden September and silver October" to increase efforts to stabilize the property market. In the short term, the following three measures can save the real estate market:

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.

As the largest pillar industry of the national economy and the most important asset of residents, it is related to the employment of tens of millions of people. If the real estate market is stable, the economy and employment will be stable. Implementing effective policies to stabilize the real estate market as soon as possible and restore residents' confidence will help drive demand into the market and boost the recovery of the real estate market.

Table of contents

1 Current situation: Policy effects show a "pulse-like recovery", and the new housing market is still under pressure

2 The traditional peak sales season has arrived, with more than 1/3 of transactions in the second half of the year concentrated in the "golden September and silver October"

3 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 Seize the important time window of "Golden September and Silver October" and introduce policies to stabilize the property market

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1 Current situation: Policy effects show a "pulse-like recovery", and the new housing market is still under pressure

Since the 517 new policy, all regions have actively implemented relevant measures such as reducing the down payment ratio and mortgage interest rates, and the real estate market has warmed up. In June, the transaction volumes of new and second-hand houses increased month-on-month and were stronger than seasonal, leading to a narrowing of the year-on-year decline in housing transactions in the first half of the year. However, since July and August, new home transactions have declined significantly and the boosting effect has been limited. On the one hand, this is because the market has entered the off-season, and on the other hand, the policy effects are not sustainable enough. The foundation for market recovery is not solid, showing a "pulsed recovery."

Commercial housingFrom a monthly perspective, in May 2024, sales of commercial housing in 36 sample cities fell by -33.5% year-on-year, up 4.9% month-on-month; in June, sales fell by -14.3% year-on-year, a decrease of 19.2 percentage points from May, and a month-on-month increase of 28.6%; in July, sales fell by -10.8% year-on-year, a decrease of 3.5 percentage points, and a month-on-month decrease of -26.1%, weaker than seasonal; in August (as of August 18, the same below), sales fell by 17.3% year-on-year, a wider decline, and a month-on-month decrease of -12.6%, weaker than seasonal. From a weekly perspective, sales in the first three weeks of August changed by -0.1%, -16.4%, and -26.8% year-on-year, respectively, and the year-on-year decline continued to expand.

Second-hand housingFrom a monthly perspective, the sales volume of second-hand housing in the 16 sample cities in May 2024 increased by 0.9% year-on-year, turned from negative to positive compared with April, and decreased by 6% month-on-month; the sales volume in June increased by 24.7% year-on-year, and the growth rate increased by 23.9 percentage points from May, and increased by 5.8% month-on-month, which was stronger than seasonal; the sales volume in July increased by 46.4% year-on-year and increased by 7.3% month-on-month; the sales volume in August increased by 13.6% year-on-year, and decreased by 21.4% month-on-month, which was weaker than seasonal. From a weekly perspective, the sales volume in the first three weeks of August increased by +18.0%, +5.3%, and +9.0% year-on-year, respectively, and the year-on-year growth rate was significantly narrowed compared with the levels in June and July (weekly year-on-year growth of more than 20%).

Judging from the forward-looking indicators, the "517" policy package only brought about a "pulse recovery" in the indicators in May and June. The momentum of the recovery of the first-line indicators in June failed to be sustained, and the heat of the front-end real estate market fell again in July.Specifically, under the influence of the "517" policy combination, the second-hand house viewing index fell slightly to 27.5 in May, but increased by 20% year-on-year, with a good viewing performance; the new house site index rebounded to 17.1 in May, down 3% year-on-year, and the number of new house visits was repaired from a low level; the indicators of first-tier cities rebounded in June, and the second-hand house viewing index fell by 3% month-on-month to 26.8 in June, but the first-tier cities increased by 2% month-on-month to 54.4; the new house site index fell by 3% month-on-month to 16.6 in June, but the first-tier cities increased by 14% month-on-month to 26.7; the second-hand house viewing index fell by 5% month-on-month to 25.4 in July, and the new house site index fell by 4% month-on-month to 15.9, and the heat of the front-end real estate market fell again in July.

The current real estate market is still trading price for volume, with new commercial housing prices declining for 28 consecutive months and second-hand housing prices declining for 30 consecutive months. Due to the increase in second-hand housing listings, improved cost-effectiveness, and high delivery certainty, the current second-hand housing market is performing significantly better than new housing. Second-hand housing diverts some housing demand, and the new housing market is under pressure to recover. It is difficult to transmit the sales recovery to the investment end.

1) Housing sales are “trading price for volume” and prices are still bottoming out.According to data from the National Bureau of Statistics, the prices of newly built commercial housing have been negative for 28 consecutive months, and the prices of second-hand housing have been negative for 30 consecutive months; from a month-on-month perspective, the prices of newly built commercial housing and second-hand housing have been negative for 14 and 15 consecutive months, respectively. The month-on-month declines in June and July 2024 continued to narrow, but it will still take time to confirm the bottoming out.

2) With the entry of rigid demand, the transaction of low-priced and high-cost-performance properties has picked up.As housing prices fall, the cost-effectiveness of some houses begins to emerge, and rigid demand gradually enters the market. According to data from the China Index Academy, from the second quarter of 2023 to the second quarter of 2024, the number of second-hand residential transactions below 3 million in Beijing increased by 51.1%, and the proportion increased from 21.8% to 30.8%. The number of second-hand residential transactions below 3 million in Shanghai increased by 90.7%, and the proportion increased from 27.4% to 40.7%.

3) Second-hand housing diverts housing demand, while new housing remains under pressureThe proportion of second-hand housing transactions has gradually increased. According to data from the China Index Academy, the sales area of ​​second-hand housing in the first six months of 2024 accounted for 26.3% of the total sales area, an increase of 3.8 percentage points over the whole year of 2023. From the performance of the new and second-hand housing markets, the sales volume of new homes in the sample cities from January to July 2024 was 55% of the average of the past five years (2019-2023), and the sales volume of second-hand homes in the sample cities during the same period was 110.7% of the average of the past five years.

2 The traditional peak sales season has arrived, with more than 1/3 of transactions in the second half of the year concentrated in the "golden September and silver October"

In the real estate industry, "Golden September and Silver October" is traditionally the peak season for real estate sales.There are certain economic and social foundations behind this phenomenon. Understanding the reasons for this phenomenon is of great significance to home buyers, investors and real estate practitioners.So, how did the traditional sales peak season of “Golden September and Silver October” come about?

1) First, seasonal factors are an important driving force behind the "Golden September and Silver October" phenomenon.September and October are autumn months with pleasant weather, providing ideal conditions for home buyers to view houses. Many families tend to buy or change houses at this time so as to complete their home purchase plan before winter comes.

2) Secondly, the “golden September and silver October” is an important node for real estate companies to concentrate their marketing efforts. In order to sell out and repatriate funds, real estate companies generally increase their sales efforts in September and October.More than a decade ago, when offline shopping was the mainstream, various businesses frequently launched discount activities around the "National Day Golden Week", and this marketing trend also continued in the real estate industry. At the same time, major cities will hold housing exhibitions almost every year during the National Day holiday, making it easier for home buyers to compare multiple categories of housing.Therefore, new real estate products are concentrated in the launch period of September and October, and marketing is promoted with the addition of discounts and good news of transaction, which has led to the well-known concept of "Golden September and Silver October".

3) Finally, the government will often introduce a series of regulatory policies based on the economic and industry performance in the first half of the year, near the "Golden September and Silver October" time node, to stabilize the real estate market in the second half of the year.In the past two years, policies to stabilize the real estate market were introduced before the "golden September and silver October". In August 2022, the central government supported local governments to adopt "one city, one policy" to meet reasonable rigid and improved housing needs. Local governments reduced down payments and increased housing provident fund loan quotas to actively "guarantee the delivery of houses and stabilize people's livelihood"; in August 2023, the central government launched a policy combination of "recognizing housing but not loans", reducing down payments, and lowering interest rates, aiming to stimulate market vitality and promote real estate transactions.

September and October are the peak sales seasons, which can be supported by historical transaction data. More than one-third of real estate transaction volume in the second half of the year is concentrated in September and October.According to the average data of the past 14 years from 2010 to 2023, the residential transaction area in September and October accounted for 10.1% and 8.4% of the whole year, ranking 3rd and 6th in the monthly ranking of the whole year respectively; the residential transaction amount in September and October accounted for 10.1% and 8.4% of the whole year respectively, ranking 3rd and 6th in the monthly ranking of the whole year. Among them, the residential transaction area in the "golden September" accounted for a relatively high proportion of the whole year, which was basically the same as June, and only lower than December, which accounted for a relatively high proportion due to "returning home to buy property".Focusing on the second half of the year, even though there is a tail-end rally in December with people returning home to buy property, more than one-third of the transaction volume in the second half of the year is still concentrated in September and October.In 2022 and 2023, the total residential transaction area in the "Golden September and Silver October" accounted for 34.8% and 35.7% of the transactions in the second half of the year.

3 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.

There is still room for the real estate market in the medium and long term: We have tracked and studied 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 of 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 by 2030, my country's housing demand will slowly decline to 910 million square meters, of which rigid demand will be 250 million square meters, improvement demand will be 370 million square meters, and renewal demand will be 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.

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 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 Seize the important time window of "Golden September and Silver October" and introduce policies to stabilize the property market

The current time is an important time window for the introduction and implementation of policies. We must seize the "Golden September and Silver October" window to increase efforts to stabilize the real estate market.If effective policies to stabilize the property market are implemented as soon as possible, real estate developers accelerate the launch of new projects, and residents' confidence in buying houses gradually recovers, it will be helpful to drive demand into the market and boost the property market recovery. The "Golden September and Silver October" in key cities may usher in a structural market situation.In the short term, more powerful incremental policies are needed in the second half of the year. The following three measures should be studied and introduced as soon as possible:

1) Establish a large housing bank with a capital of more than 3 trillion yuan, with low interest rates, long terms and large scale, and purchase the land and commercial housing inventory of developers for rental housing and affordable housing.After obtaining funds from commercial banks, local governments will pay real estate developers to ease their financial pressure. Developers must guarantee the delivery of buildings after receiving funds, which can prevent unfinished projects. This will kill two birds with one stone, solving the problems of local finances, developer cash flow, and residents' "unfinished buildings", while also solving the housing security system for new citizens, which will be applauded by all sectors of society.The central bank has set up 300 billion yuan of affordable housing re-loans, which is in the right direction, but the scale of 300 billion yuan is relatively small. The 1.75% interest rate plus the supporting financing and operation and maintenance costs make the overall cost relatively high. The current rental return rate is less than 2%, and local governments are insufficiently motivated to purchase. The interest rate of the re-loan tool can be lowered to cover the cost of funds and increase local enthusiasm.

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;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 nationwide. Correspondingly, small-sized homes in core urban areas of core cities and other rigid demand products need to be released with caution.The previous property market was 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) Continue to lower interest rates, including reducing the interest rates on existing mortgage loans for second homes, to reduce home purchase costs, reduce the burden on residents, and reduce bank liability costs by lowering the reserve requirement ratio.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 is 3.45%; the average mainstream second mortgage interest rate is 3.90%. 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.The first mortgage rate was lowered before, and the social response was very good. The second mortgage rate should also be lowered. This is good policy. To ease the pressure on the bank's net interest margin, targeted reserve requirement ratio cuts and continued reductions in deposit rates can be used to coordinate.

In addition, we can also consider improving policies to support home purchases for families with many children, such as issuing housing purchase subsidies and lowering mortgage interest rates for families with many children.The additional population brought 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 preferential policies to families with children to buy houses and reduce the direct cost of raising children will help expand domestic demand, stabilize growth and employment in the short term, and help boost fertility levels, improve human capital, and enhance 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.

As the largest pillar industry of the national economy and the most important asset of residents, it is related to the employment of tens of millions of people. If the real estate market is stable, the economy and employment will be stable. Implementing effective policies to stabilize the real estate market as soon as possible and restore residents' confidence will help drive demand into the market, boost the recovery of the real estate market, and contribute to China's economic recovery and employment.