Translated by: Ermat

Image Source: Gnews

Since the 12th document of the CCP in 1998, it was determined to “expand domestic demand, develop housing construction, and stimulate economic growth.” This opened the curtain for real estate as a pillar industry of the CCP’s national economy.

According to the National Bureau of Statistics of the Communist Party of China, the contribution rate of real estate to GDP in 2020 is 7.34%, and the total contribution of real estate and construction industry is 14.5%. The real estate industry has a large scale, a long upstream and downstream industrial chain, and a wide range of related industries, driving the building materials, decoration, home manufacturing, metal, finance and other industries.

In 2022, the well-known epidemic and previous developments have accumulated as a sequelae. Data show that real estate development investment in the first quarter of this year increased by 0.7% year-on-year. In March, among the 70 large and medium-sized cities, the sales prices of commercial housing in various tier cities decreased year-on-year or the growth rate declined.

In the first quarter, the sales area of ​​commercial residential buildings decreased by 18.6% year-on-year, the land purchase area decreased by 41.8% year-on-year, and the funds in place for real estate development enterprises decreased by 19.6% year-on-year.

On April 29, the Political Bureau of the Communist Party of China (CPC) held a meeting and proposed to support localities to improve their real estate policies in the light of local realities, adhere to the word “stability” and promote the stable and healthy development of the real estate market. 

According to the incomplete statistics of China New Business, Huizhou of Guangdong, Meizhou of Guangdong, Wuxi of Jiangsu, Lianyungang of Jiangsu, Xuzhou of Jiangsu, Yueyang of Hunan, Ganzhou of Jiangxi, etc. have recently announced the adjustment of the previously implemented real estate regulation policies. These include lowering the down payment ratio, lowering mortgage interest rates, changing the VAT exemption period for second-hand properties from 5 to 2 years, relaxing sales restrictions, subsidizing home purchases, and increasing the maximum amount of CPF loans. 

For example, Anhui Ma’anshan adjusted the CPF loan amount: both spouses can borrow up to 600,000 yuan. Zhenjiang lowered the down payment ratio for provident fund loans, and adjusted the down payment ratio to 40% for the second application for provident fund loans for families of depositors who have settled their first provident fund loans. Ganzhou even relaxed the loan age for home buyers to 70 during the May Day housing exhibition, in the hope of selling a lot during the  Golden Week of May Day.

However, the market did not buy it. As of May 6, the stock market was the first to give the answer. The closing data of the day showed that the real estate sector as a whole fell by 4.79%, the largest decliner. Obviously, this series of preferential policies did not work. The real reality is that when the epidemic is blocked, production is shut down, and people are struggling to buy food and eat, who will buy a house?

There is a “moving joke” circulating on the Internet, it is said that an old father sent some food to his daughter whose supply was cut off. The daughter opened it and found a round of RMB under the food, and she burst into tears. The Internet is applauding, but an indisputable fact tells you that the tide of supply cuts is coming.

As early as last year, experts warned that 2022 will not be easy for the real estate industry. Local governments sold land at high prices, and real estate companies bought land with hundreds of millions of funds from banks. Then put that money into buying more land, borrowing more debt, and opening more deals. Homebuyers’ incomes have not kept pace with rising house prices. 

The housing supply and demand are extremely distorted, and the real estate market generally faces the problems of difficult sales and slow return of funds. The occurrence of thunderstorms in real estate enterprises is inevitable. During the period from January to February 15, 2022, a total of 59 real estate enterprises nationwide declared bankruptcy. On average, 1.2 real estate companies withdraw from the stage of history every day.

Now, the booming real estate boom that has been booming for decades is no longer there. What used to be the engine of economic development has become a hot pressure cooker. The lid can be lifted at any time, and a huge shock wave from a crisis will capsize the broken boat of the Chinese Communist Party in a matter of minutes.

Source: 

房地产是中共经济的压仓石还是风险源