Deputies’ spotlight on housing
Focus on market’s healthy long-term development to brighten economic outlook this year
The annual two sessions of China’s top legislature and top political advisory body, which ended on Friday, once again focused attention on the direction of the real estate market, particularly the residential segment, a key economic concern.
Although the bullish stock market has stolen realty’s thunder of late, industry experts said intense discussions on micro controls, property tax and long-term real estate mechanisms have shifted the economic spotlight back on to property this month.
The two sessions are always closely watched by all the key economic sectors, and property is no exception, as the meetings of deputies, or China’s lawmakers, set the tone for related policies.
“Conventionally, we can read the policy focus for the coming year from the two sessions, and the Government Work Report delivered by the Premier in particular,” said Regina Yang, director and head of research at Knight Frank, a real estate consultancy.
“The Premier stated that improving the local taxation system to gradually promote the legislation of property tax is one of this year’s tasks. This suggested the tax will be part of the long-term mechanism for the property sector in the future,” said Lu Wenxi, a researcher with Centaline Shanghai, a property consultancy.
Experts said the proposed property tax, which has stirred heated debates for a decade now, could well become reality in the years to come.
“The procedure for a property tax law has been progressing, and media reports suggest it could be submitted to the Standing Committee of the National People’s Congress (China’ top legislature) for deliberations later this year. So, it could possibly take effect in the year 2021 or 2022,” said Chen Sheng, president of the China Real Estate Data Academy.
“As of now, the issue of the proposed property tax has attracted a lot of public attention. The market has changed its attitude toward it. From doubting its possibility, the market has traveled to widespread common sense. Everyone now thinks it’s just a matter of time before the tax becomes a reality,” said Liu Tianyang, vice-president of Centaline for the Chinese mainland, and president of Yuancui Information Technology, which is a fully owned subsidiary of Centaline Group.
“The Government Work Report stated that China will stick to city cluster development, ensuring policy support for developing major city clusters in the Yangtze River Delta region, the Beijing-Tianjin-Hebei region and the Pearl River Delta region,” said Lu.
Economic collaboration and balanced layout within the city clusters will narrow the gaps between the cities and benefit the regions as a whole, he said.
“The recently announced Guangdong-Hong Kong-Macao Greater Bay Area plan that is set to boost South China will bring about great opportunities, and the property market will be one of the first sectors to benefit,” said Yang of Knight Frank.
Compared to previous years, property speculation was not mentioned in this year’s Government Work Report. This suggested the property market has shown signs of cooling under consistent micro control policies, according to Lu.
In 2018, realty-related policies were tightened a record 400-plus times to rein in runaway property prices in Chinese cities.
Against such a backdrop, total revenue on land transactions across the nation hit a record 6.5 trillion yuan ($970 billion) in 2018, up 25 percent year-on-year, according to data from the National Bureau of Statistics.
The surge in land transactions was in line with the record home transactions in 2018, which were valued at 15 trillion yuan, up 12 percent year-on-year.
“From my understanding, the keynote for the property market will be keeping the market stable, to align with the central government’s spirit,” said Chen.
“For property micro controls, the central government has granted local governments more power to adjust policies, based on their respective situations. That means, local governments can adjust their real estate policy according to local conditions. This gives local governments more flexibility, while avoiding the systemic risks that could be brought by unified control,” said James Shepherd, who heads China-related research at Cushman & Wakefield.
Barring a few cities’ policy relaxations through minor controls, there was no major change in the central government’s real estate regulation policy. Stable growth and risk prevention remain the cornerstone of the real estate market regulations, and the central government retains a strong say to control financing and the flow of funds.
“All the efforts already made and will be made, be they micro control policies or reforms — they will serve the government’s ultimate goal of forming a long-term mechanism for a stable property sector. They will make sure China’s real estate market is healthy, standardized, stable and continually developing,” said Liu of Centaline.
According to Shepherd, the longterm mechanism for real estate stability will likely include five key elements: finance, land, taxation, investment and legislation.
The mechanism, even though unlikely to be established quickly, will aim to increase land supply, underpin the leasing market and restrain investment speculation through financial means.
This year, the government will likely focus on continuing to promote the long-term scheme in 16 key cities (four first-tier cities and 12 key second-tier cities), to be followed in the rest of the country.
Given the long-term nature of the mechanism, it will take a while for it to be explored fully and implemented carefully. So, results ought not to be expected in the short term, industry insiders said.
However, the mechanism may reshape China’s real estate market once it is fully implemented, said Shepherd of Cushman & Wakefield.
Liu expects the mechanism to reflect Chinese characteristics after factoring in the experiences of other nations and regions as reference points.
“It will enable all participants to fully play their roles, all the resources to get optimized and the real estate sector to operate effectively.”
Experts agreed the real estate market is going to remain stable in the next 12 months, though some local governments will likely moderately relax local restrictions on homebuyers. But, the overall market will not change substantially as key factors like capital and credit are expected to be stable.
Stepping up urbanization is an important task for China in the foreseeable future. That requires balanced development of residential property, infrastructure and public services.
China is aiming to help 100 million non-native residents (those that mostly live in urban areas, but are registered in their rural birthplace) to receive hukou, or household registration certificates, in cities, by 2020.
Shepherd said: “This creates certain opportunities in China’s real estate market. People who live in the city without a hukou may face hurdles regarding their children’s education, social insurance and so on.
“With the promotion of new household registrations in cities, non-native residents may be more inclined to purchase homes, which will likely boost urban property sales.”
Mid-March is here, but the spring seems to be elusive in China’s residential property market, which is riddled with slow sales and hence resorting to fresh discounts to destock.
Experts suggested the Chinese lunar Year of the Pig, which began on Feb 5, may prove to be a difficult one for sellers of residential property in China. Hence, developers are leaving no stone unturned to hardsell homes.
Xu Jiayin, chairman of China’s property developer Evergrande Group, announced a marketing campaign this month. The Shanghaibased China Business News reported that the group has 690 projects, and Evergrande will offer a 10 percent discount on residential properties, and 20 percent on retail properties.
Since 2011, around the onset of the Chinese New Year, Evergrande has been offering discounts to homebuyers.
Last year, Evergrande, and other well-known property developers such as Vanke and Country Garden, were among a slew of firms that offered large discounts on their new projects.
Shenzhen-based Evergrande sold 52.4 million square meters of gross floor area in 2018, second only to Country Garden’s 77.3 million sq m, according to data from China Real Estate Information Corp.
Home sales have brought in capital of 551.1 billion yuan ($82 billion) for Evergrande last year. It ranked third among domestic developers, trailing Country Garden (728.7 billion yuan) and China Vanke (606.9 billion yuan).
“The central government is expected to continue its tight control on the real estate market and strictly supervise real-estate financing, a situation which will cause some challenges to developers through 2019,” said James Shepherd, who heads China-related realty research at Cushman & Wakefield.
Top 100 property developers in China saw a month-on-month sales revenue decline of almost 23 percent in February, and that for the top three was nearly 11 percent.
The month-on-month drop was partly due to multiple factors like a seasonal sales low caused by the Chinese Spring Festival holiday. However, this year, sales were marked by a year-on-year low as well.
Evergrande’s contract value of total sales in January and February was about 64.7 billion yuan, down 42.5 percent from a year ago, Securities Daily reported.
The sales decline is across the board. In the housing market, some 9.6 million sq m of gross floor area were traded in 29 major cities in February, down 53 percent from January, and down 28 percent from the same period of 2018, a CRIC report said.
On Feb 25, the official WeChat account of China Vanke published an internal speech by Yu Liang, chairman of Vanke, in which he called upon the company to keep focus on survival this year.
Since Feb 12, widespread layoffs have been reported in Country Garden with some divisions getting downsized by half, according to National Business Daily, which quoted company insiders.
“The home market faces pressure for adjustment, and that for market bellwethers is even higher,” said Lu Wenxi, a researcher with property consultancy Centaline Shanghai.
In order to bolster their capital flow and strengthen their resilience to withstand risks, real estate developers will take various measures, he said.
A Savills China research report stated that in the short term, China is not expected to expand financing channels for real estate companies.
However, large-sized companies will continue to have more advantages in receiving loans. Meanwhile, the government would continue to allocate resources to promote development in areas such as renovation of shanty towns, affordable housing projects and rental housing.
Faced with high repayment pressure, domestic property owners are expected to offload their properties to pay off their debts.
The market is forecast to see a price correction this year when sellers face pressure to sell off properties in the tepid market, the Savills report stated.
Though some local governments might moderately relax local homebuying restrictions, Shepherd expected the real estate market to remain stable in the next 12 months.