Summary of Key Policies in the Real Estate Sector on August 28th
On August 28th, two significant policies were introduced in the real estate sector: firstly, the Ministry of Housing and Urban-Rural Development, along with two other departments, promoted the sale of completed residential housing; secondly, the China Securities Regulatory Commission (CSRC) announced a package of measures to support new models in the capital market for the real estate industry, including extending the maximum mortgage period to 40 years, issuing mortgages after the completion of pre-sale properties, and raising the proportion of income that can be used to repay debts. Experts generally agree that these policies are not designed to stimulate the real estate market in the short term, but rather to establish a new model for real estate development—moving away from the old era of relying on high leverage and high turnover, towards a new phase that focuses on the residential aspect of properties and the value of the projects themselves.
Detailed Analysis of the Policies
1. The "Low Price" of Pre-Sale Properties Hides Risks: Don't Bet on Projects Falling Through
Financial commentator Liu Ge highlighted the true nature of pre-sale properties: The low price of pre-sale properties is not a benefit, but a reflection of the risk involved.
- The logic is simple: Developers with sufficient funds prefer to sell completed properties because they are tangible and can command higher prices. Conversely, those who insist on selling pre-sale properties often lack sufficient capital or have weak financing capabilities and need to collect payments from buyers in advance to cover their expenses.
- The savings you make by buying a pre-sale property are essentially a "risk fee" you are paying for the possibility of the project falling through. Liu Ge warns that a project falling through is not just a matter of probability; it can be devastating for ordinary families, who not only lose their home but also continue to make mortgage payments.
- The policy to promote the sale of completed properties aims to eliminate this risk for buyers and make home purchases safer.
2. 40-Year Mortgages: Providing Cash Flow Relief for Those in Real Need
The extension of the mortgage period from 30 to 40 years was a hot topic among the policies. Yan Yuejin, deputy director of the Shanghai E-House Research Institute, viewed this as a major breakthrough in the financial sector:
- Previously, the default mortgage period was 30 years, assuming that income would grow linearly (for example, increasing from age 20 to 50). However, many people's incomes fluctuate over time (young people may earn less at the beginning of their careers, and middle-aged individuals may experience salary reductions).
- A 40-year mortgage significantly reduces the monthly payment. For example, a loan of 1 million yuan at a 5% interest rate would result in a monthly payment of 5,368 yuan over 30 years, compared to 4,825 yuan over 40 years, a saving of more than 500 yuan per month. This can help those in real need alleviate short-term cash flow pressures and make it easier for them to purchase their first home.
- It is important to note that this policy is not intended to encourage speculation in the housing market, but to provide flexibility to those who truly need a home.
3. Middle-Aged Families Should Focus on Stability First; First-Time Homebuyers Should Not Focus on Appreciation
Economist Fu Peng offered practical advice to middle-aged families and first-time homebuyers:
- Middle-aged families: Reduce your leverage before considering investments. Middle-aged individuals face unique risks; they cannot afford to gamble on high returns like young people, nor can they rely solely on stable investments like the elderly. The first step is to repay mortgages, secure jobs, and maintain sufficient cash flow to build a financial safety net before considering appreciation.
- First-time homebuyers: Don't worry too much about whether the property will appreciate. The key for first-time homebuyers is to find a comfortable place to live (considering layout and community amenities), ensure the monthly payment is within their budget, and have access to essential facilities (schools, metro, hospitals). The real estate market has shifted from a period of widespread price increases to one where only properties in core areas are likely to appreciate. For most first-time homebuyers, the primary goal should be to have a place to live, not to consider it as an investment.
4. The New Financing Policy Is Not About Saving Real Estate Companies, but About Establishing New Rules for the Industry
Financial scholar Xi Yingchun emphasized that the CSRC's new financing policy is not about prolonging the old model but about redefining the rules of the industry:
- Problems with the old model: In the past two to three decades, real estate companies made money through high leverage, rapid land acquisition and development, and expansion, assuming that housing prices and demand would always remain high. However, with tighter financing in 2020, this model collapsed, leading to a rise in failed projects and a vicious cycle.
- The new logic: The focus has shifted from evaluating real estate companies to evaluating the projects themselves. Financing is now based on the project's actual demand, cost-effectiveness, and ability to generate stable cash flow (such as through rental income or sales). For example, a well-positioned project with popular layouts can attract funding even from smaller companies, while poorly managed projects, regardless of the size of the company, may struggle to obtain funding.
- The future competitiveness of real estate companies: No longer does it matter who can acquire land or borrow money; the focus is on who can build quality housing and manage it effectively (for example, through good rental income). State-owned companies can help with resolving failed projects, but they cannot always take over the responsibility—otherwise, the problem is merely shifted from private to government, without solving the underlying issues.
Conclusion
The core of these policies is to transition from an old era driven by rising housing prices and high leverage to a new model that emphasizes residential safety, stable cash flow, and the value of the projects. For ordinary people, home purchases are now safer, and the pressure on first-time homebuyers has decreased. For real estate companies, the days of relying on scale to succeed are over; they must rely on their products and operational capabilities to thrive in the new market.