Wed. Sep 20th, 2023
    China’s Real Estate Market Faces Continuous Decline

    China’s real estate market has been experiencing a steady downward trend since 2022, with a significant decrease in investment and sales. The land premium rate is currently at its lowest level in a decade, while the combined passed-in and withdrawal rate of auctioned and listed land parcels remains persistently high. This decline has led to concerns about systemic risks in the industry.

    To combat this negative trend, the central government has implemented a series of laws, regulations, and policies with the aim of stabilizing the real estate market. These measures are based on the principle that “housing is for living in, not for speculation.” They are tailored to different cities and cover various aspects of development, construction, investment, financing, and sales.

    One key initiative focuses on land supply and development, with policies that prioritize market orientation and the rule of law. These policies aim to address the risks faced by real estate developers and ensure the smooth completion and delivery of projects. Measures have been put in place to strengthen the good faith and civil enforcement of escrow accounts for pre-sale funds, preventing delays in payment to construction companies.

    Furthermore, the use of letters of guarantee as a replacement for escrowed pre-sale funds has been permitted, allowing reputable real estate developers to effectively utilize these funds. Various regions in China have also introduced supporting policies, such as accepting demand guarantees as performance guarantees for land auctions and adjusting quotas for escrowed pre-sale funds based on developers’ credit records.

    In order to boost sluggish housing sales, policies have been implemented to meet reasonable housing demands and reduce the costs and risks of home buying. These include a phased reduction of interest rate floors for commercial individual housing loans for first homes and a refund of individual income tax paid on the sale of existing houses when purchasing a new house within one year.

    Additional measures have been taken to protect the rights of homebuyers, including ensuring a buyer’s claim for property delivery takes priority over other claims. Local authorities have also implemented various measures such as allowing transactions of pre-owned homes under mortgages, relaxing home purchase restrictions, and lowering caps on real estate agent commissions.

    The focus on investment and financing is on resolving debt risks in the real estate sector and facilitating a smooth transition to a new development model. Financial support has been provided to guarantee housing delivery and address risks faced by distressed developers. Efforts have also been made to encourage private capital participation in urban development, construction, and operation, including the promotion of real estate investment trusts (REITs) in the infrastructure sector.

    These measures aim to create a more stable and sustainable real estate market in China. While challenges remain, these initiatives demonstrate the government’s commitment to addressing the concerns and risks within the industry.

    – National Bureau of Statistics
    – Supreme People’s Court
    – Ministry of Housing and Urban-Rural Development
    – People’s Bank of China
    – China Banking and Insurance Regulatory Commission