Recently, several market institutions have released real estate market reports for the first three quarters of this year. Data shows that in the first three quarters, the sales area of new houses in key cities across the country decreased by more than 30% year-on-year; the price of second-hand houses has fallen for 28 consecutive months, and the transaction volume is basically the same year-on-year.

Since entering the third quarter, the supporting effect of the "5·17" real estate market policy has weakened, and the impact of traditional off-season and other factors has further reduced the scale of real estate transactions. The recent meeting of the Political Bureau of the CPC Central Committee has set the tone to promote the "stabilization" of the real estate market. Including cities such as Guangzhou, Shenzhen, and Shanghai, many cities have quickly followed up with policies such as purchase restrictions and adjustments to the real estate market, and it is expected that the market will see marginal improvements in the fourth quarter.

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Transaction weakness

Despite the "5·17" real estate market policy driving the transaction volume to rebound in the middle of the year, the overall transaction scale of the real estate market in the first three quarters of this year still shows a downward trend.

Data from the China Index Academy shows that in the first three quarters of this year, the activity of the new housing market as a whole is relatively weak. The sales area of new commercial residential buildings in the top 100 key cities decreased by about 32% year-on-year, of which the third quarter decreased by about 19% year-on-year; the transaction volume of second-hand houses in the top 30 key cities decreased by 2% year-on-year, and the decline was significantly narrower than that of new houses.

However, the transaction volume of second-hand houses is basically the same year-on-year, mainly due to "exchanging price for volume". Data shows that in the first 8 months of this year, the cumulative decline in the price of second-hand houses in the top 100 cities was 5%, and it has fallen for 28 consecutive months.

The inventory data of new commercial residential buildings in the top 100 cities released by the Shanghai Yiju Real Estate Research Institute also shows that in August of this year, the transaction area of new commercial residential buildings in the top 100 cities across the country decreased by 27.0% year-on-year, which was an expansion compared to the 18.5% decline in July, and the deceleration cycle was 25.2 months.

In terms of the second-hand residential market, the transaction volume of the top 22 key cities across the country fell by 3% in the first 8 months of this year, while the same period last year the growth rate was positive, and the amplitude was relatively large at 31%.

Data from the National Bureau of Statistics shows that in the first 8 months of this year, the sales area of commercial housing across the country was 610 million square meters, a decrease of 18.0% year-on-year; the sales volume of commercial housing was 6 trillion yuan, a decrease of 23.6% year-on-year, which narrowed by 0.7 percentage points compared to the first 7 months.

In addition, the trend of market stabilization has also been shown."July-August marks the traditional off-season for marketing, and as a result, the sales area and amount of newly built commercial housing in the third quarter are the lowest of the year." According to CRIC, in August of this year, the sales area of newly built commercial housing was 64.53 million square meters, and the sales amount was 639.3 billion yuan, with year-on-year decreases of 12.6% and 17.2%, respectively, and both declines have narrowed compared to the previous month.

Policy Continuation

Since the third quarter, the effect of housing market policy support has gradually weakened. Under the recent "stabilization" signal, many parties expect that subsequent supportive policies are likely to be intensified and implemented as soon as possible, and the market is expected to see marginal improvements with the boost in confidence.

"Under the 'stabilization' signal, real estate policies will further open up space in reducing mortgage interest rates and adjusting taxes and fees." CRIC Research Center Deputy General Manager Yang Kewei believes that under the corresponding requirements of the recent Central Political Bureau meeting, it is expected that the LPR (Loan Prime Rate) quote on October 20th will likely be reduced by 20-25BP, further driving the central axis of mortgage interest rates lower; at the same time, various forms of tax exemptions, such as deed tax, value-added tax, and personal income tax, will be implemented to promote housing consumption.

On September 29th, the central bank implemented a number of financial measures to support the real estate market, including cities like Guangzhou, Shenzhen, and Shanghai, which are also following up with policies such as adjusting purchase restrictions.

Among them, the central bank issued a notice to officially initiate the reduction of existing mortgage interest rates. According to the notice, the first set of existing mortgage interest rates across the country can be reduced to LPR-30BP, and it is required that all commercial banks release operational details no later than October 12th, and in principle, a unified batch adjustment of existing mortgage interest rates should be implemented before October 31, 2024.

"The types of mortgages involved in this adjustment are extensive, including not only the first set but also the second set and above, covering all existing mortgage interest rates." Chen Wenjing, Director of Policy Research at the China Index Research Institute, pointed out that after this adjustment, the first set of existing mortgage interest rates across the country can be reduced to LPR-30BP, which is currently 3.55%; the second set and above existing mortgage interest rates in Beijing, Shanghai, and Shenzhen are expected to be reduced to the newly issued second set interest rates, such as the second set existing mortgage interest rates within the fifth ring road in Beijing can be reduced to 3.8%, and outside the fifth ring road to 3.6%.

In addition, Shanghai, Shenzhen, and Guangzhou have successively issued new real estate policies, involving optimizing purchase restrictions, reducing down payment ratios, reducing the value-added tax exemption years, and other aspects. Among them, in terms of housing purchase restrictions, the social security duration requirement for non-local households outside the outer ring in Shanghai has been reduced from 3 years to 1 year, Shenzhen has lifted the purchase restrictions in the suburbs, and Guangzhou has completely lifted purchase restrictions.

"The rapid follow-up of Shanghai, Shenzhen, and Guangzhou to the new real estate policies is also a specific response to the '9·26' Central Political Bureau meeting, and the policy strength is in line with expectations." Chen Wenjing believes that the follow-up of these cities to the new real estate policies is expected to increase the activity of the real estate market in various places in October, and will further promote the repair of the national real estate market activity. However, it still requires more policy implementation for the national real estate market to stabilize and rebound.

In addition to further adjustments to existing policies such as housing purchase restrictions, loan restrictions, and sales restrictions, the industry believes that subsequent localities will pay more attention to promoting the construction of high-quality housing and introduce a series of supportive policies."Supply-side policies will place greater emphasis on promoting the construction of high-quality housing and pilot programs for the sale of ready-built properties," Yang Kewei believes. In terms of high-quality housing, there will be further optimization of the calculation rules to increase the usable area ratio, a moderate reduction in the retention ratio of pre-sale funds for high-quality projects, encouragement of quality and reasonable pricing, and no longer implementing new housing price guidance, etc.; for the pilot programs of ready-built property sales, it may involve increasing the loan amount for the development of ready-built property projects, extending the loan period, and reducing the loan interest rates, etc.

It is worth noting that against the backdrop of the overall weak new housing market, the performance of ready-built property sales is significantly better than that of pre-sale properties. In the first eight months of this year, the sales area of pre-sale commercial housing was 420 million square meters, a year-on-year decrease of 27.7%; the sales area of ready-built properties was 180 million square meters, a year-on-year increase of 18.6%. At the same time, in the first eight months, the proportion of the sales area of ready-built properties in the total sales area has increased to 30.2%, an increase of 7.7 percentage points compared to the whole year of 2023.