Realty recovery forecast on optimized policies

The domestic real estate market had seen unprecedented adjustments and changes in 2023, and experts said they expect 2024 to be a year of recovery, propelled by supportive policies and increased investor confidence as the overall property market explores a new development model.

Shaun Brodie, head of research on the China market at global real estate services firm Cushman &Wakefield, said the residential market "in first-tier cities is expected to take the lead in market stabilization and recovery in 2024, which will be gradually seen in second- and third-tier cities."

Meanwhile, government regulation of the residential market will focus on long-term mechanisms, aiming to avoid excessive volatility and maintain stable overall market development, Brodie said.

Property consultant JLL China said "timely" policy adjustments will consolidate the recovery momentum of the sector.

"Policymakers have clearly noted that a significant change has taken place in the real estate market's supply-demand relationship, and in order to adapt to the new situation, policy adjustments and optimizations should be made in a timely manner," said Bruce Pang, chief economist for JLL China.

The measures should come after thorough study and judgment of major trends and structural changes in the real estate market, as well as the urbanization pattern, while efforts should be made to eliminate negative effects — such as high debt and high leveraging — that have accompanied the previous property development model.

Hui Jianqiang, head of research at Beijing Zhongfang-Yanxie Technology Service Ltd, said a meeting of the Political Bureau of the Communist Party of China Central Committee held on July 24, 2023, had sent out a clear signal, and a raft of measures soon followed.

The meeting, which analyzed the economic situation and made arrangements for economic work in the second half of the year, called for concrete efforts in preventing and defusing risks in key areas, and adapting to the major changes that have taken place in the relationship between supply and demand in China's real estate market.

Real estate policies should be adjusted and optimized in a timely manner, the meeting said, adding that the policy toolkit should be well utilized with city-specific measures to better meet residents' essential housing demand and their needs for better housing, as well as advance the stable and sound development of the property market.

As many as 751 policy easing measures had been issued by local governments, covering more than 330 cities across China as of Dec 18, over 140 more than that in 2022.

The easing measures peaked in September, with more than 140 such announcements, according to data collected by Zhuge Real Estate Data Research Center.

The measures included reducing down payment ratios, lowering mortgage interest rates, encouraging commercial banks and borrowers to negotiate more favorable interest rates, providing financial support to ensure the timely delivery of property projects, and giving financial support to local governments' low rental housing, among others, said Guan Rongxue, a senior analyst at Zhuge Real Estate Data Research Center.

Guan said these measures reached a new level in December with the nation's two biggest cities, Beijing and Shanghai, announcing adjustments to their existing home purchase policies in favor of home trading on Dec 14.

The optimization measures, like lowering down payment ratios, cutting mortgage interest rates, and optimizing the definition of ordinary housing, will activate the home market in the two cities and boost overall market confidence, helping to promote the stabilization of the Chinese housing market, said Chen Wenjing, director of research at the China Index Academy.

"The series of measures has gradually paid off, and there are already some positive signs emerging. Overall, China's real estate industry is looking for a new balance," said Pan Gongsheng, governor of the People's Bank of China, China's central bank, at a conference in Hong Kong in late November.

"Although efforts should be made to prevent an extended effect in the short term, the property market's current adjustment will be beneficial to China's economic growth and sustainable development over the long term," Pan said.

Broad consensus

The property industry has broadly echoed Pan's views.

"The latest macro data suggest that some major indicators of the real estate market have indeed continued to show signs of marginal improvement recently, although it must also be noted that the growth rate of real estate investment continues to decline, and the decline in sales continues to expand, indicating that the real estate market is still at a stage of bottoming out," said Pang of JLL China.

"While waiting for the previous policies to take effect, confidence and patience are also imperative before any further improvement in the real estate market," Pang said.

According to the National Bureau of Statistics, property investment fell 9.4 percent in the first 11 months of 2023 compared with a year earlier, while in the first 10 months, it declined by 9.3 percent.

During the same period, commercial housing sales fell 8 percent year-on-year in terms of floor area, extending the downward trend by 0.2 percentage point, NBS data showed.

"Despite market changes, as a real estate service provider, we will always put the focus on meeting the needs of consumers and solving every problem emerging in home transactions," said Wang Yongqun, chief operating officer of real estate broker Lianjia.

For example, as residential consumption becomes more service-oriented, safety has turned into a primary concern for home trading consumers, Wang added.

As per a recent S&P report, both market sentiment and prices in China's property market are starting to become normalized.

S&P projected that the Chinese property market has bottomed out.

From a long-term perspective, the real estate sector will strike a new balance between supply and demand that adapts to the current market scale, given the top-level policy guidance and actual market demand, S&P Global (China) Ratings said in its report dated Nov 24.

Chen Sheng, president of the China Real Estate Data Academy, said anticipation was the keyword of the property market in 2023.

Chen said that despite all the challenges, the spirit of "never giving up" led various parties — the government, industry players, property developers and consumers — to work together with the hope of stabilizing the market and aiding in its recovery.

"Such a spirit will carry on in 2024 and bring about positive changes in the property market," Chen said.

Positive signals

The tone-setting Central Economic Work Conference held in December has also sent out positive signals that further measures will be introduced along with the existing supportive measures to stabilize the sector, he added.

During the conference, existing risks and difficulties in the real estate industry were mentioned, and relevant support policies may be introduced in 2024.

Meanwhile, clear requirements for the future development of the real estate industry have been put forward, guiding the industry to accelerate toward a new development path in the mid- to long-term.

The conference called for proactive and prudent efforts to defuse risks in the property sector, equal treatment toward reasonable financing needs of real estate enterprises regardless of ownership, treating equally different kinds of ownership, and the accelerated building of a new development model for the industry.

Based on the existing status of the realty market, measures introduced by central and local governments, as well as the intent of the Central Economic Work Conference, Pang said he expects the real estate market to stabilize in 2024.

With the formation of a virtuous cycle of finance and real estate and the establishment of a new property development pattern, the property market can show stable and healthy development, he added.

"We think the government will continue to implement measures to stabilize the property market, improve expectations, support homebuyers' demand for housing and home improvement, boost social housing and meet the reasonable financing needs of property developers," Pang said.

The property sector remains a pillar industry of the Chinese economy.

The policy stance has shifted to supporting the property sector as a stabilizer and growth driver of the Chinese economy, preventing it from becoming a drag on the economy.

Policies could be further eased until the physical market shows signs of stabilization and recovery, and industry leaders with solid fundamentals sail through the tough times, Pang added.

Brodie said he expects support for the residential market to be strengthened in 2024 and more policy concessions and safeguards used to promote the healthy development of the residential market.

"It is expected that the house purchase policies within first-tier cities and second-tier hotspot cities will continue to be adjusted and optimized. It is also expected that the construction and development of affordable housing will be further accelerated. In addition, the long-term rental housing market and real estate investment trusts will continue to develop," said Brodie.

"In our view, China's real estate market has transitioned from a phase where supply falls short of demand to a new stage featuring more balanced supply and demand dynamics," S&P said in its report.

Despite its prominent position in China's economy, the real estate sector is set to witness the end of a boom period and enter a new era of high-quality and healthy growth, as the market landscape has undergone fundamental changes, it said.

"In the medium and long run, we expect to see a new balance point between real estate sector's supply and demand that fits the current market scale. The nationwide new residential house sales are unlikely to hit (the 2021 level of) 18 trillion yuan ($2.54 trillion) again. In our view, the new balancing point will be driven by two factors — the central government's top-level policy guidance addressing housing issues, and the actual homebuying demand," according to the report.

Riding on the spirit of the Central Economic Work Conference, a national housing and urban-rural construction meeting was held on Dec 21 and 22 in Beijing, which outlined key tasks for 2024.

The meeting promoted the high-quality development of urban and rural construction to a new level, said Chen of the China Index Academy.

Chen also said the meeting further clarified the direction of real estate policy in 2024, stressing that it is necessary to make efforts to build quality homes and that an increased supply of quality houses will drive demand for better living conditions in the future.

"After more than two years of market adjustments, quite a few favorable elements have emerged in the market, which will join forces with existing measures to realize the stabilization of the property market in 2024," Chen said.