The real estate industry in China is undergoing significant changes as the government and key stakeholders make efforts to transition to a new development model. On May 9, Hangzhou lifted its housing purchase restrictions completely, following other major cities like Beijing, Shanghai, and Shenzhen. The Politburo of the Communist Party of China emphasized the need to adapt to the evolving real estate market and address the public’s growing demand for high-quality housing. The goal is to balance existing unsold homes and optimize the supply of new housing, aiming to create a new, stable, and sustainable real estate development model that moves away from cyclical fluctuations [para. 1].
This transition poses challenges, including how to shift from an expansive growth model to one that ensures stability and health in the real estate market. The new model must prevent developer defaults, ensure the completion of pre-sold homes, stabilize the industry, and prevent further economic drag. Achieving the goal of providing “housing for all” is essential, but the process will involve difficulties and growing pains, testing the abilities of policymakers and industry stakeholders alike. Successfully developing this new model will be another milestone comparable to the 1998 housing reform [para. 2].
Local conditions will play a significant role in shaping the new real estate model. Despite China’s extensive residential floor space, specific areas still face unmet housing needs, particularly for new urban residents. The prevalent “three highs” model—high debt, leverage, and turnover—has led to issues like debt crises among developers, which hinder timely housing delivery. This model’s drawbacks necessitate its abandonment in favor of regulatory shifts and industry-wide reform [para. 3].
Addressing the large inventory of unsold homes is crucial for economic recovery. As of March, unsold commercial housing reached a record high of 748 million square meters. Priorities include managing developer risks, ensuring pre-sold homes are completed, and moving away from the “three highs” model [para. 4].
Government interventions, such as buying up unsold homes, are currently being explored. Some regions have pilot programs, with Hangzhou’s Lin’an District recently purchasing commercial housing for public rental. Nanjing has also issued rules for using existing housing as affordable housing. However, local financial constraints have limited the effectiveness of these pilots, highlighting the need for national-level action [para. 5].
While buying unsold homes could serve as a short-term measure to clear inventory, if integrated into a new development model, it could significantly impact the industry’s future. This strategy requires careful consideration of funding sources, mechanism design, and future operations to address potential issues of fairness, justice, and moral hazard [para. 6].
Expanding affordable housing through such measures could be a vital component of the new model. Historically, efforts to provide affordable housing have been part of major economic reforms, such as the 1998 housing reform and the 2008 financial crisis stimulus plan. However, the supply of affordable housing has generally lagged behind social demand. Governments have recently accelerated affordable housing construction to meet these needs, reflecting deeper issues related to household registration reform and equalizing public services. Government intervention in housing could help address this shortfall, thus promoting the stable development of the commercial housing market [para. 7].
The real estate sector has long been a key driver of China’s economic growth, but it is currently at a critical juncture due to changing population dynamics and economic conditions. Despite recent struggles, real estate will continue to play a significant role in the economy under the new model. This model will emerge from ongoing negotiations and rational considerations among stakeholders, informed by past experiences [para. 8].
AI generated, for reference only