"Whole Chain" Regulation And Supply Side Power: The Change Of The Underlying Logic Of Real Estate

        In the course of China's real estate regulation, many policies have been called "the strictest in history", but in terms of actual strength, these policies are far less than the current ones.

Since the "three red lines" policy was launched in August last year, China's real estate regulation has experienced a round of continuous increase. Superimposed on various policies and measures since 2017, the current regulation and control has reached an unprecedented level. In recent years, the real estate market "volume increase price stability", also to a large extent benefited from this.

In recent years, there are two clear logic lines in the regulation of real estate: in terms of control means, the supply side reform of land and finance has been strengthened while restraining the demand side by means of measures such as purchase restriction and loan restriction; In the scope of regulation and control, from the traditional field of real estate development and investment, it gradually extends to the chain of second-hand housing, leasing, urban renewal, and even property management.

Recently, Qingdao, Shenzhen, Tianjin and other cities suspended the second round of centralized land transfer and revised the transaction rules according to the requirements of the regulatory authorities. This is considered to be "patching" the reform of the land supply side.

The change of regulatory thinking is not only a new requirement for the development of the real estate market at this stage, but also a profound change in the underlying logic of the real estate industry. Some analysts pointed out that in the past years, China mainly relied on market-oriented means to solve the problem of insufficient housing supply, but now it has changed to solve the structural contradiction between supply and demand, and to resolve the risk of excessive marketization accumulation in the past. This also contains the adjustment of industry positioning and the change of overall control objectives.

The change of regulatory thinking is not only a new requirement for the development of the real estate market at this stage, but also a profound change in the underlying logic of the real estate industry. Photo by Zheng dikun

Two logical lines

The second round of centralized land supply in full swing has suddenly changed recently. Qingdao, Shenzhen, Tianjin and other cities suspended the centralized land transfer, but did not state the specific reasons.

At the same time, a document circulated among the people shows that the Ministry of natural resources has made new arrangements for some centralized land supply cities, with a view to increasing supply and stabilizing land prices. The 21st century economic reporter confirmed the document from multiple sources, and the Ministry of natural resources put forward four main requirements, including "the premium rate of single land shall not exceed 15%", "after reaching the upper limit, the actual land price shall not be increased by means of competing for construction". After the first round of centralized land supply, some problems began to appear, and these measures were considered as "patching".

The policy of centralized land supply was officially launched at the beginning of this year. The Ministry of natural resources selected 22 hot cities to carry out pilot projects. According to the rhythm of no more than three times a year, centralized land announcement and centralized land transfer were implemented. In the view of many practitioners, the mode of "retail to wholesale" is a major change in the land supply side, and its impact is no less than the "8.31 New Deal" 17 years ago.

Before that, the supply side reform of financing side had already started. In August 2020, according to the asset liability ratio, net debt ratio and cash short debt ratio excluding advance collection, the regulatory authorities defined "three red lines" for real estate enterprises, and implemented four file financing quantitative management according to the situation of real estate enterprises. At the end of that year, the regulatory authorities implemented the "five file" management of housing loans according to the proportion of real estate loans of banks and other financial institutions.

The strengthening of supply side regulation is regarded as an important logic line of real estate regulation in recent years. Compared with demand management, these policies have a more direct impact on investment, financing and land acquisition, and can better control financial and land risks.

Another logic of property market regulation is that it gradually extends from the traditional real estate development and investment field to the chain of second-hand housing, leasing and urban renewal.

The concept of "simultaneous rent and sale" has been put forward as early as 2014, but in recent years, the supervision of the leasing industry has been significantly upgraded. Since the explosion of eggshell apartment in 2020, the regulatory authorities have emphasized on different occasions to strengthen the supervision of the rental market.

In June this year, the general office of the State Council issued the opinions on accelerating the development of affordable rental housing, proposing to accelerate the improvement of the housing security system with public rental housing, affordable rental housing and housing with common property rights as the main body, and clarified the basic system and supporting policies of affordable rental housing. In July, the regulatory authorities made arrangements for the development of affordable rental housing in the form of a teleconference. Since then, many cities have proposed rental housing construction plans. According to the plan, this housing category will be launched in large quantities, and the market supply structure will be gradually changed.

The supervision of second-hand housing transactions is also increasing. In addition to taking second-hand housing transactions as the starting point and strictly controlling real estate speculation in school districts, many cities have recently adjusted the guiding prices of second-hand housing transactions, so as to better regulate transactions and stabilize prices. At the same time, the second-hand housing transaction order inspection and rectification is unprecedented frequent.

In August, the hand of regulation extended to the field of urban renewal. The Ministry of housing and urban rural development issued a draft for comments, emphasizing the prevention of large-scale demolition and construction in the implementation of urban renewal. This is also seen as a correction of the previous policy.

Therefore, the current real estate market regulation policy not only covers both supply and demand, but also extends to the whole chain, with unprecedented strength and breadth.

Reconstruction of real estate

According to Bai Wenxi, chief economist of IPG in China, behind this change is the inevitable requirement of the development of the real estate market to the present stage.

He told the 21st century economic reporter that over the past years, as one of the industries with the most full market-oriented reform, the real estate industry has basically solved the huge historical debt of national housing security by means of marketization. It has also contributed a lot to China's urban construction and local finance, and has become the largest industry in the national economy for many years.

A time node recognized by the industry is that around 2014, China's housing supply and demand from the transition stage of supply and demand balance, the market also began to show structural supply and demand dislocation.

However, at the same time, the economic growth in some places has formed excessive dependence on the real estate industry, mainly manifested as "land finance" and "real estate finance". This has also caused new problems to a certain extent, "the contradiction of housing structure formed by pushing up housing prices and land prices infinitely has also led to excessive accumulation of resources to the real estate industry, and accumulated huge financial risks."

Since the beginning of this year, some real estate enterprises have defaulted on their debts, exposing this kind of financial risk. The relevant person in charge of a listed real estate enterprise in Beijing told the 21st century economic reporter that although there is an adverse effect of policy regulation and control, even if this factor is put aside, the financial models of some real estate enterprises are relatively fragile and difficult to resist normal market fluctuations.

According to Bai Wenxi, from the perspective of medium and long-term macro policy choice, real estate is no longer the starting point for short-term economic stimulation, but the goal is to stabilize housing prices, land prices, expectations and "housing does not stir up", so as to effectively solve the housing structural contradictions, which is an inevitable choice under the "double cycle" mode, and also to prevent the "grey rhinoceros" related to housing risks It is necessary to ensure the smooth operation of the economy.

Therefore, the underlying logic of the real estate industry has changed from solving the problem of insufficient housing supply by means of marketization to solving the structural contradiction between supply and demand, and resolving the risk of excessive marketization accumulation in the past“ Since the second half of last year, the introduction of a series of regulatory policies, and even the checking and mending of the original policies, all reflect the changes in the underlying logic and positioning of the industry. "

In fact, in the "pocket" of regulatory authorities, there are more and more regulatory tools to choose from, and the policy portfolio tends to be diversified. The above-mentioned people of real estate enterprises believe that in recent years, the real estate market transaction has maintained a high level, but the overall price is stable, which largely benefits from the flexibility and pertinence of regulatory policies.

The person in charge of an agency under the Ministry of natural resources also pointed out to the 21st century economic reporter that in addition to the departments directly related to policy-making, in recent years, the public security and network information departments have increasingly participated in the rectification of the market order, reflecting the strengthening of the implementation level.

He stressed that this kind of change is very important, because only when the implementation is in place, the idea behind the policy will gradually become popular. One of the reasons for the poor effect of many regulatory policies in the past is the repeated policies and a large number of loopholes in the implementation.

"There is little fantasy about policy deregulation now." The person said that at this stage, the regulation policy will only "patch" or correct the deviation, but the overall thinking and control objectives will not change.