china real estate news: fiscal policy is urgently needed to restore property market expectations and restore confidence.
2024-10-07
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in a deflationary environment, fiscal policy becomes a more effective policy tool. cfp/photo provided
chief economist of china enterprise capital alliancebai wenxi
on september 24, the central bank introduced a series of policies including lowering reserve requirements and interest rates, lowering down payment ratios, lowering interest rates on existing mortgage loans and interest rates on second homes, with the aim of stimulating market demand through financial means and promoting the recovery of the property market. however, the effectiveness of these financial policies to promote demand-side leverage depends on the restoration of market expectations and the restoration of industry confidence, of which fiscal policy is the key to policy implementation.in a deflationary state, the failure of the transmission mechanism results in limited effectiveness of monetary policy, which often makes it difficult to achieve policy goals. obvious deflation problems have emerged in areas with a high degree of marketization in my country. at this time, the rapid introduction of more direct fiscal policies to promote the restoration of market expectations and the recovery of industry confidence is the key to this round of real estate rescue and the construction of a new model of real estate development. critical and urgent.1. the impact of this round of financial policies on the property market1. policy of lowering rrr, lowering interest rate and lowering down payment. in the policy "gift package" on september 24, rrr cuts, interest rate cuts, and down payment cuts are key financial policy tools. these policy combinations are designed to stimulate the demand side of the real estate market. in terms of rrr cuts, this rrr cut will release about 1.2 trillion yuan of long-term funds, which can theoretically increase banks' lending capabilities to industries and markets, thereby increasing the liquidity of the real estate market. in terms of interest rate cuts, after an interest rate cut of 50 basis points, the market quoted interest rate (lpr) of loans with a term of more than five years, mainly housing loans, will decrease accordingly, which will guide commercial banks to lower the interest rates of new housing loans, existing housing loans and provident fund loans, easing the pressure on home buyers. repayment pressure. in terms of down payment reduction, the unified and simultaneous reduction of down payment ratios for new and second-hand homes has enabled home buyers to enter the market with less of their own funds, improving the accessibility of home purchases.2. adjustment of existing mortgage interest rates. according to statistics, after this adjustment, the average interest rate of existing mortgage loans dropped by about 0.5 percentage points. the purpose of this policy is to ease the financial pressure on mortgage borrowers and increase their spending power, thereby indirectly boosting the real estate market. however, policy effects are also affected by market expectations. if market confidence is low and expected income is poor, consumers may choose to save rather than consume even if repayment pressure is reduced.3. interest rate adjustment for the second home. after this policy adjustment, the loan interest rate for second homes is expected to be no lower than that for first homes, which will reduce the loan costs for improvement home buyers. this policy aims to stimulate improved demand and promote transaction volume in the real estate market. however, if the market does not have strong expectations for housing prices to stabilize or rise, or is not optimistic about future economic conditions and income expectations, then improvement demand may not increase significantly even if loan costs decrease.market expectations and industry confidence are key factors affecting the effectiveness of this round of financial policies. if market participants are pessimistic about the future economic situation and housing price trends, even if financial policies provide more liquidity, lower loan costs, and lower market entry thresholds (down payment ratio), they may not be able to effectively stimulate market demand. therefore, the effect of this round of financial policies depends to a large extent on the restoration of market expectations and industry confidence.2. the role of fiscal policy in the real estate marketin a market economy, monetary policy and fiscal policy are the two major tools used by the government to regulate the economy. monetary policy affects economic activity by adjusting the money supply and interest rates, while fiscal policy affects the economy directly through government spending and taxes.in the real estate market, the effect of monetary policy is often affected by market expectations and confidence. compared with monetary policy, fiscal policy can directly stimulate the economy through government spending. for example, the government can directly stimulate the real estate market through infrastructure construction, providing housing purchase subsidies, or even directly entering the market or relying on state-owned enterprises to enter the market.in a deflationary environment, the effectiveness of monetary policy is often limited because market participants tend to hold cash rather than increase borrowing and spending. the elasticity of market demand for money decreases, and lowering interest rates may not be able to effectively increase the money supply and thus fail to stimulate economic growth. in this case, fiscal policy becomes a more effective tool. fiscal policies can affect the real estate market in many ways, including providing home purchase subsidies, reducing or reducing housing-related taxes and fees, and increasing public housing construction. the government can reduce the cost of home buyers and stimulate demand by providing home purchase subsidies; by reducing or exempting housing-related taxes and fees, it can reduce the cost of purchasing and holding real estate and encourage housing investment and consumption; it can increase public housing construction or directly participate in the market by state-owned enterprises. , to provide more housing supply or adjust supply to promote market supply and demand balance and market recovery.3. the focus of fiscal policy to rescue the property market1. eliminate the risk of unfinished buildings.the problem of unfinished buildings not only affects the rights and interests of home buyers, but also has a huge negative impact on market confidence. fiscal policy can resolve the problem of unfinished properties in the following ways: first, government capital injection: help complete the construction of unfinished property projects and protect the rights and interests of home buyers by directly injecting capital or providing loan guarantees; second, the intervention of policy banks: policy sexual banks can provide special loans to support the restart and completion of unfinished building projects; third, tax incentives: for companies and home buyers involved in the restart of unfinished building projects, the government can provide tax exemptions and exemptions to encourage companies and consumers to participate; the fourth is the refund of pre-sale money: for projects that are too difficult to sell and have lost their value for renewal due to excessive house price drops, the government will organize the original developer to return the pre-sale purchase money and abandon the project construction. in the event that the developer goes bankrupt or is indeed unable to return the pre-sale purchase price, the government will provide appropriate compensation to the home buyers. this is not only a reflection of the government's public responsibility, but also a necessary payment for the previous government's inadequate supervision of pre-sale payments.according to statistics, the average completion rate of unfinished building projects is only 60%, but after government intervention, the completion rate can be increased to more than 80%. this data shows that government intervention can effectively improve the completion rate of unfinished building projects, thereby restoring market confidence.2. promote the recovery of market expectations.according to market research, more than 50% of potential home buyers said that the uncertainty of market expectations is the main reason for their wait-and-see. therefore, repairing market expectations through fiscal policy can effectively stimulate market demand.fiscal policy can promote the repair of market expectations in the following ways: first, increase public investment: the government can increase investment in infrastructure construction to increase the attractiveness of the real estate market, thereby improving market expectations; second, home purchase subsidies: reduce the number of home buyers through home purchase subsidies cost, stimulate market demand, and enhance market expectations; third, information disclosure and transparency: the government can reduce market uncertainty and stabilize market expectations through open and transparent information release.3. industry confidence is restored.according to statistics, the industry confidence index is positively correlated with the transaction volume of the real estate market. for every 1 percentage point increase in the industry confidence index, the transaction volume of the real estate market increases by an average of 2%. this data shows that restoring industry confidence through fiscal policy can effectively promote transaction activity in the real estate market.fiscal policy can restore industry confidence in the following ways: first, support the financing of real estate companies: by providing financing support, reduce the financing costs of real estate companies, and enhance the investment confidence of real estate companies; second, optimize land supply: by optimizing the structure and rhythm of land supply, provide more high-quality land resources, controlling the total amount of land entering the market, and enhancing the development confidence of real estate companies; third, industry support policies: the government can introduce policies such as tax exemptions and fee reductions, and providing technical support to enhance the competitiveness of the real estate industry; fourth, the government entering the market to bridge the mismatch between supply and demand in the market: directly or with the help of state-owned enterprises and central enterprises, while purchasing some existing commercial housing and converting it into affordable housing, control the scale of housing construction and the number of newly started projects to promote the balance between supply and demand in the market.4. intervention boundaries of fiscal policyalthough fiscal policy intervention is necessary, excessive intervention may lead to market failure and reduced resource allocation efficiency. in order to avoid excessive intervention, the government can adopt the following strategies: first, market-friendly policies: when designing policies, the market's response and acceptance should be considered to ensure that the policies can be accepted by the market and effectively implemented. the second is gradual implementation: the implementation of policies should be gradual, and policy intensity should be gradually adjusted based on market response to avoid one-time excessive intervention. the third is transparency and communication: the government should maintain communication with market participants to ensure policy transparency and reduce market uncertainty. fourth, supervision and evaluation: the government needs to supervise and evaluate the effects of policies and adjust policies in a timely manner to avoid excessive intervention. through continuous evaluation of policy effects, the government can adjust policies in a timely manner and avoid excessive intervention. fifth, market response monitoring: the government can assess the impact of policies by monitoring market response.5. learning from international experienceduring the 2008 financial crisis, the u.s. federal government adopted a series of fiscal policies to stabilize the financial market and real estate market. the first is direct capital injection: the u.s. government (federal treasury) provided direct capital injection to important financial institutions and enterprises such as citigroup and the three major automobile companies through the troubled asset relief program (tarp) to prevent their failure from triggering a larger-scale economic crisis. . the second is asset purchases: the federal reserve system implemented a quantitative easing policy to provide liquidity and stabilize financial markets by purchasing large amounts of mortgage-backed securities and other financial assets. the third is policy innovation: the u.s. government has launched innovative policies such as the housing affordability adjustment program (hamp), which aims to reduce loan default rates, help distressed homeowners restructure their loans, and reduce foreclosures. according to statistics, the tarp project ultimately achieved approximately 10% revenue, indicating that direct government intervention was effective to a certain extent. at the same time, quantitative easing policy has played an important role in stabilizing financial markets and providing conditions for economic recovery.the fiscal policy adopted by the united states has certain implications for my country's policy implementation. the first is timely intervention: china's fiscal policy should be introduced promptly when market confidence is damaged to prevent further spread of risks. the second is a multi-pronged approach: the u.s. government has adopted a variety of fiscal policy tools. when formulating fiscal policy, china should also comprehensively consider the use of multiple tools to achieve policy synergy. the third is risk control: when the u.s. government rescues companies, it also pays attention to risk control, such as establishing special purpose vehicles (spvs) to isolate risks. when china implements fiscal policy, it should also consider necessary risk control to ensure the sustainability of the policy.6. fund scale and raising of fiscal policy bailoutwhen assessing the scale of funds required for fiscal policy relief, multiple factors need to be considered, including the current conditions of the real estate market, expected relief effects, and the government's fiscal capacity.according to the latest market report, the current total market value of the real estate market is approximately 300 trillion yuan, of which approximately 5% of properties are unsaleable, and the scale of funds requiring rescue is initially estimated to be 1% to 2% of the total market value.the rescue policy aims to restore market confidence and promote transaction activity. it is expected that every 1 yuan of fiscal funds invested can drive 3 to 5 yuan of market demand. taking into account the government's fiscal revenue and expenditure status and debt levels, the scale of rescue funds the government can afford is limited. according to the ministry of finance, the government's fiscal deficit rate should not exceed 3% of gdp. based on the above factors, it is initially estimated that the scale of funds required for fiscal policy to rescue the market is about 3 trillion to 6 trillion yuan.to raise the funds needed for fiscal policy to rescue the market, the government can take the following approaches:one is to issue government bonds: the government can raise funds by issuing government bonds, which is the most common method of raising funds. according to historical data, the issuance cost of government bonds is about 3% with an annual interest rate, and has continued to decline, with high market acceptance.the second is to increase specific taxes: the government can consider temporarily increasing real estate-related taxes, such as property tax, land value-added tax, central share of land transfer fees, etc., as a way to raise funds. it is estimated that if the property tax is increased by 1%, fiscal revenue can be increased by approximately 200 billion yuan per year.the third is the disposal of state-owned assets: the government can raise funds by disposing of some state-owned assets, such as equity in state-owned enterprises, idle land, etc. according to estimates, if 5% of state-owned assets are disposed of, about 1 trillion yuan of funds can be raised in one go.fourth, international financing: when necessary, the government can also raise funds through the international financial market, such as issuing foreign currency bonds. but this approach requires consideration of exchange rate risks and international credit ratings.it should be noted that the way funds are raised should take into account the impact on the economy and sustainability, and avoid increasing the long-term financial burden on the government.7. implementation strategies for fiscal policy rescue1. selection of financial instruments. in order to achieve the rescue effect, fiscal policy needs to choose appropriate tools. the first is direct financial subsidies: the government can provide home purchase subsidies to reduce the financial burden on home buyers and stimulate market demand. according to statistics, every rmb 10,000 home purchase subsidy provided can increase the willingness to purchase a home by about 3%.the second is tax incentives: reducing or exempting real estate transaction taxes, reducing transaction costs, and increasing market transaction activity. it is estimated that for every 1 percentage point reduction in transaction taxes, transaction volume can increase by approximately 2%.the third is public housing construction: meeting the housing needs of low-income groups by increasing the supply of public housing. according to surveys, every additional 10,000 units of public housing can solve about 3% of the housing demand. acquiring existing commercial housing and converting it into affordable housing has the effect of balancing the market supply and demand dislocation, activating the market and improving industry liquidity. it should become the main fiscal policy starting point to bridge the structural dislocation of market supply and demand. the injection of necessary fiscal funds, coupled with the use of policy bank loans and commercial loans to promote the implementation of this policy, will not only achieve the above policy goals, but also partially resolve the idling of liquidity in the financial sector.the fourth is land supply policy: effectively control the pace of land transfers, while recovering idle and non-renewable project land, optimize the land supply structure to balance market supply. according to historical data, for every 1% increase in residential land supply, the supply of new homes can increase by approximately 1.5%.2. implementation steps and supervision. the implementation of fiscal policy requires clear steps and effective supervision. in terms of policy design, appropriate policy tools and implementation details are designed based on market conditions and financial capabilities. in terms of policy promotion, the policy content is widely publicized through the media and public channels to ensure that market participants understand the policy intention and operation methods. in terms of policy implementation, the policy should be implemented gradually according to the established steps and timetable to ensure that the policy effect is gradually revealed. in terms of effect monitoring, we should establish a policy effect monitoring mechanism, regularly evaluate the implementation effect of the policy, and adjust the policy direction and intensity in a timely manner. in terms of risk assessment and management, it is necessary to evaluate the risks that the policy may bring, such as excessive financial burden, market overheating, resource misallocation, and moral hazard in policy implementation, and formulate corresponding risk control measures. establish a risk management mechanism, including risk warning, risk response and risk mitigation, to ensure that various risks can be effectively dealt with during policy implementation.through the implementation of the above strategies, fiscal policy can promote the improvement of market expectations and the restoration of industry confidence on the premise of controlling risks, so as to achieve effective rescue, promote the construction of a new model of real estate development, and achieve the stability and development of the real estate market.(this article was published on page 10 of china real estate news on september 30 by su zhiyong, editor-in-chief)
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