Chinese real estate still has potential?

Economist Guan Qingyou 管清友, in an article, believes that the real estate market reached a turning point in 2017 and that the era of consolidation has begun.
Developers must change their vision and leave illusions behind. The good times of easy prosperity are over. We have to move from developer to artisan. Large projects, leverage with credit, must give way to better management, raise funds, and generate profits. The market is changing; a more refined approach is needed.

Restrictive measures

In 2016, the government decided to curb the real estate bubble. As of 2017, many measures targeted financial institutions linked to the real estate sector. Land grants to developers were reduced. In August 2020, the authorities further tightened their supervision to prevent speculation and credit proliferation. Faced with the pandemic, the government, in the spring of 2020, did not include real estate loans in its policy of lowering interest rates for loans. Alongside these measures, a natural phenomenon forces a readjustment of the strategy.

A decrease in the active population

With aging, the working population has been declining since 2013. In seven years, the net loss is 26 million people. The decline is expected to continue. As a result, the rigid market is less important.
The surface area per inhabitant has increased significantly over the last 30 years, reaching 20m ². The rate of progression is the first in the world. Improvements are still needed.

The potential of urbanization

China’s urbanization is accelerating, focusing on medium-sized cities, which are part of city clusters. These municipalities have implemented many policies to attract population. The economist estimates that 200 million new people are expected to move to cities. This factor presents a strong potential for companies in the sector.

Guan draws attention to the need for real estate groups to adapt to the changes taking place: increasingly strict measures to curb price increases and speculation; and the decline in the labor force. A more refined market strategy must take the place of the gigantic old projects to address newcomers. Hope can remain with the future urbanization, which is expected to bring 200 million people to the cities. They must find housing. Nothing to worry about then?

Related articles :

Why is real estate so important in China?

City Clusters and Redistribution of the Maps

Do Chinese cities have money?

Rising real estate in Shenzhen? Yes, but!

Source :

管清友:2017是房地产的拐点 大整顿时代开始

4 October 2020

Why is real estate so important in China?

Local governments are highly dependent on the real estate market and on income from land. Revenues from land sales account for almost 60% of their total revenues in 2019.

Proportion of revenues from land sales in total revenues, evolution from 2010 to 2019 (in 2019, the figures are for the first 10 months):



Chine immobilier

Investments in 2019 contributed to 46.98% of GDP growth, including 24.10% for real estate. Every week for 15 years in Western countries, we’ve been asking questions about the bursting real estate bubble in China, people forget the close link it has with the government (local and central).. If the sector collapses, China collapses. Thus the central government will not let the real estate sector fall.  Instead, it has another problem – it has been ingeniously implementing measures since 2010 to curb price increases (see an example in Beijing).

It is lining its pockets

In addition, the sector is a major area of corruption, before Xi Jinping’s arrival, it was estimated that the amount of “grey commissions” equivalent to 20% of the sale price of a new house was 20%, the amount seems to have fallen, but it remains substantial. Indeed, more than 40 authorisations are required from purchasing the land to selling the property. So many people have an interest in seeing a prosperous market… So what is the government doing after the epidemic?

Stability is the key word.

In recent weeks, there have been questions about whether new measures and taxes or provisions to stimulate the sector are on the way. Li Keqiang, in his speech on the 22nd, spoke about the sector in a few words (81 characters) calling for stability and pushing back speculation. The report stresses the need to direct loans to SMEs, which need help, to strengthen controls and to ensure their proper use. It is true that some loans had not gone in the direction intended (see article on Shenzhen). In any case, the real estate market has not calmed down (see here).

24 May 2020

Rebound confirmed in real estate

Analysts are closely monitoring developments in the real estate and automotive sectors, which can pull the Chinese economy upwards. The latest studies published confirm once again the net rebound in real estate activity, even if the treasuries are in need of bailouts.

Transactions take off in the resale residential market
The volume of real estate transactions to grow during the May 1st holidays (May 1 to May 5). According to a study by the Securities Journal – 证劵时报, in 18 major cities, transactions were 60% higher than in the same period last year (which admittedly lasted only 4 days). 14 of these cities recorded an increase, Beijing had the highest, 100% with 900 sales, and Hangzhou was stagnant. The biggest drop out of 4 is in … Wuhan with -13%.

Real estate in China

More purchases for developers
On the new-build side, land bought by the 50 largest developers rose by 7.2% in April over April 2019 and by 108.9% over March 2020.

Lower prices among developers
70% of developers have lowered their prices, down to -24%. The Evergrande, 恒大集团, group from Shenzhen, listed on the Hong Kong stock exchange, lowered its prices by 16%; at the same time, the area of homes sold rose by 19% and the amount of sales by 45%. On the surface, the developers are making large profits; in fact, they are forced to lower their margins to speed up cash flow because they are under pressure from their debts. Those far from the eastern side of more prosperous China are struggling; the recovery has taken longer in the centre of China, especially in the third- and fourth-tier cities. Inventories are high, debt is peaking and financing is complicated.

These indications confirm a good recovery, with a catch-up effect. The first quarter of the year, punctuated by the epidemic, has put cash flow in difficulty, forcing developers to lower their prices to bring in cash. This policy of low prices should stop as soon as the cash inflows allow the financial departments to breathe easier!

At the request of readers, we will be introducing new Chinese vocabulary in the future :
拿地, ná dì: literally take land. In fact, it is buying the right to exploit and use a piece of land. It is translated as “To buy land”. 

Article consulted :  楼市5月份开启“降价潮”,房价要跌?70%房企已行动,降幅达16% 

14 May2020

Did China recover?

China’s dynamism at the rendezvous
The explosion of the epidemic has not dampened the dynamism of Chinese society. Despite the drop in international demand, some sectors are booming. Real estate agencies and developers are very busy. Many employees, as in the good old days, are busy on their telephones with their clients until 11pm. The sales data of April came to confirm this impression.

The promoters are in good shape
The research center CRIC, in its latest study, shows that the sales of the 100 most important Chinese promoters in April with 900 billion yuan ( 127 billion dollars) of sales show an increase of 17.2% on March, but above all a growth compared to April 2019. Admittedly, the 0.6% growth is timid, but it comes from afar; the months of January, February and March, respectively, had shown a drop of 12.7%, 37.7% and 17.2% compared to the same months of 2019 (see table below). 

Change in sales of the 100 largest developers in value during the first 4 months of 2020 compared to the same months in 2019:

Real Estate in China

This 0.6% increase and the improved environment suggest that May will be even better. 

Increase in transactions
In terms of the number of transactions, the increase is 43% in March and 5% in April 2019 for the 28 major cities surveyed. The measures taken to facilitate sales procedures and credit easing have had a beneficial influence on transaction volume.

It is certainly still too early to say that China has already recovered. However, it is clear that the real estate is back after an already difficult year and two very slow months.

Find articles on the real estate sector here.
Chinese article consulted: 4月楼市持续回温 百强房企销售额同比年内首次转正

Published May 9, 

Cities are rich in China?

The mad growth of China’s Glorious Thirty has enriched part of the Chinese population. Cities are among the big winners. The urbanization rate in China is approaching 60% of the population. 

Beijing and Shanghai in the lead

A study by the Bank of China shows that the average wealth per household is 3.179 million yuan ( 450,000 USD) in Chinese cities.  Beijing leads these cities, with an average of 8.928 million ahead of Shanghai, 8.067, and the cities of Jiangsu, 5.069. Disparities are wide, of the 30 provinces, regions and municipalities (managed directly by the central government) in the study*, 8 are above average, with Xinjiang province in last place. See table below. 

Household housing wealth in urban areas in millions of yuan :

1Beijing8,928
2Shanghai8,067
3Jiangsu5,069
4Zhejiang4,807
5Fujian4,183
6Canton3,998
7Tianjin3,616
8Hebei3,539
9Anhui3,140
10Shandong3,020
11Qinghai2,856
12Hainan2,825
13Ningxia2,667
14Guizhou2,470
15Yunnan2,429
16Chongqing2,393
17Shanxi2,382
18Henan2,351
19Hubei2,349
20Hunan2,294
21Jiangxi2,193
22Sichuan1,933
23Inner Mongolia1,904
24Guangxi1,817
25Shaanxi1,808
26Heilongjiang1,736
27Liaoning1,716
28Gansu1,697
29Jilin1,415
30Xinjiang1,275

Unsurprisingly, China’s eastern facade is the richest, with an average of 4.61 million yuan compared to 1.65 in the northeast, 2.076 in the west and 2.635 in the center.

杭州

Real estate above all
Real estate occupies 70% of this heritage. 96% of households are owners, 58.5% own one property, 31% two and 10.5% three. In comparison, the study recalls the data of some Western countries, where the number of owners in the whole country is less important: 

Countries by home ownership rate :

CountryPercentage
Australia67
Canada66,5
France64,9
USA64,2
England63,2
Japan61,9
Turkey60,4
Korea56,8
Germany51,7
Hong Kong50,4
Switzerland42

Owner, yes, but!
Remember that Chinese owners are not owners in a certain sense! A Chinese owner doesn’t have a lifetime title of ownership, but a right of use of 70 years for the residences from the date of authorization of the soil, before construction, and 50 years for most other properties (industrial, commercial).

The largest differences in wealth are explained by the ownership of stores and factories. Owners of business assets have an average wealth of 7.768 million, 3 to 4 times more than those who do not own business assets. 
99.7% of households own financial assets, with an average of 649,000 yuan or 20.4% of average wealth.
56.5% of families have debts. 75.9% of debts come from the purchase of a home.

If this study is interesting, it should be remembered that it concerns only 60% of the population, the urbanized one. The wealth effect comes mainly from real estate market prices. For example, Beijing has an average price per square meter close to 60,000 yuan, or 8,450 USD. For the centre of the capital, the budget has to be increased significantly. Moreover, the surface area is not calculated in the same way. The common areas are included. An apartment of 100 square meter in China may correspond to 88 sq in Europe, or even much less in the large complexes. You can go down to 72. The term “efficient housing rate” is therefore used, 得房率. Thus, the habitable square meter is much more expensive. 

For more information, we will have to wait for a study on the whole of China. With lower sums? Certainly!

* The data on Tibet is not provided!

Articles consulted:
中国城镇居民家庭资产均值逾300万 负债主要是房贷
央行调查:城镇居民家庭资产均值逾300万元

7 May 2020

A real estate boom in Shenzhen? Yes, but!

The real estate market halved 

While the market for office properties, is going through a difficult period, sales in residential real estate are increasing. Prices in March 2020 showed a strong increase of 1.6%, compared to February. Transaction volume also increased by 3.8 times reaching 8008 units in March — the highest in the last two years.

Business loans changing market directions

Industry experts are concerned that this increase may be fuelled by corporate lending. Several articles, including in the Youth Daily and on the Xinhua website, report that Shenzhen’s banking authorities announced on April 22nd, 2020 that loans granted to businesses are being diverted to the real estate market, as part of their governmental support resulting from the Covid-19 crisis. In fact, governmental measures taken to help companies in the midst of the epidemic give out commercial loans at lower rates (around 4%) than residential real estate rates. Furthermore, these governmental loans also allow buyers to see a 50% decrease in their interest rates with an upper limit of one million yuan (around 80,000 euros). As an example, for a three million RMB loan, the buyer benefits from a reduction in interest from RMB16,000 to RMB11,000 for his monthly payment. Some buyers, who did not have their own company, used shells or middlemen, who provide them with a company in their name for 3,000 to 5,000 yuan. Even speculators got into the game.

A moderate impact?

Government agencies have not quantified the extent of these maneuvers. Articles judge that loans to companies illegally directed towards the real estate sector do not affect the majority of real estate transactions. Analysts believe that this unorthodox use is only one of the reasons for the market’s rise. Indeed, the city of Shenzhen acted too late to prevent Yin Yang* contracts that allowed for lower taxes and overvaluation of properties to obtain larger loans. These practices increased the volume of transactions.

While this increase is very real in these uncertain times, it is partly due to the redirection of loans to businesses and the lack of rigour of the control authorities in the sale process.

* On a sales contract, a lower sale price is officially declared. The tax department calculates taxes based on this official price. This way, the buyer who usually pays the taxes for the seller, makes some savings. On another contract, the real price is written down. This document will remain in the hands of the buyer, the seller and the real estate agent.  

This practice is widespread in many sectors. The authorities let it happen by “opening one eye and closing the other, 睁一只眼, 闭一只眼”.

This type of contract was used as a pretext to bring Chinese star Fan Bingbing under control.

Articles on the subject:

深圳楼市暴涨是不是经营贷惹的祸 in the Youth Daily 青年报

经营贷违规流入楼市惠企好政策为何肥了投机者 on Xinhua’s website 新华网

2 May 2020