The focus of real estate regulation after the epidemic should shift to the supply side

The steady development of the real estate market is an indispensable part of promoting the formation of a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles reinforcing each other. Affected by the epidemic, the domestic economic structure and real estate situation have undergone major changes. What is the current state of macroeconomic operation? How will the closely related real estate market situation evolve? Basic judgments on these issues determine macroeconomic and real estate policy decisions.

Changes in housing rents reflect real changes in employment and investment to a certain extent and are an important barometer of the macroeconomy. At the same time, macroeconomic conditions constitute an important external environment for real estate market regulation. This article analyzes and predicts the post-epidemic macroeconomic and real estate market situation and regulation through big data analysis of rental changes since 2020, and suggests that the focus of real estate regulation should be timely shifted from the demand side to the supply side.

Rents showed a seasonal rebound for the first time after the epidemic, and the economy entered a stage of substantial recovery

First of all, housing rents in core cities showed a significant seasonal rebound for the first time after the epidemic. The Weifang Rent Core Index, which reflects the comprehensive changes in housing rents in 22 core cities, shows that since February 2020, affected by factors such as the impact of the epidemic, housing rents in core cities have fallen for four consecutive months. June 2020 entered the traditional peak season for the rental market, and rents in core cities began to stop falling. In July 2020, Weifang's core rent index rose to 102.6 points (taking the rent level in January 2018 as 100 points), an increase of 1.03 points or 1.01% from the previous month. This is the first significant recovery in housing rents in core cities after the epidemic. Although the increase in rents in July has distinct seasonal characteristics, and rents may fall again in August or September, the economic signal behind it is very significant. Behind the rise and fall in rents are changes in the activity of leading economic indicators such as hiring and business openings. The significant seasonal rebound in rents in core cities after the epidemic shows that the post-epidemic economy has entered a stage of substantial recovery. Economic leading indicators such as business openings and recruitment have begun to recover substantially, and it is expected that economic growth will continue to pick up in the future. This will also have an important impact on the regulation of the real estate market.

Secondly, among first-tier cities, rents in Shanghai, Guangzhou and Shenzhen all increased seasonally, while rents in Beijing continued to fall. Among first-tier cities, housing rents in Shanghai, Guangzhou, and Shenzhen all experienced significant seasonal increases in July 2020. Guangzhou increased by 1.04% month-on-month, Shanghai increased by 1.07% month-on-month, and Shenzhen increased by 1.62% month-on-month. Only Beijing still fell 0.67% month-on-month. This shows that the economies of first-tier cities are initially recovering from the impact of the epidemic. The separate decline in Beijing may be related to the second impact of the epidemic in Beijing. This also confirms from another aspect that after the epidemic has been effectively controlled, the economy of first-tier cities has entered a stage of substantial recovery. With the effective control of the epidemic in Beijing, the economies of first-tier cities will initially emerge from the shadow of the epidemic.

Finally, most second-tier cities experienced seasonal increases in rents, while only 3 cities experienced a decrease in rents. Housing rents in most second-tier cities experienced seasonal increases in July 2020. Among them, housing rents in Nantong, Nanjing, Hangzhou, Chengdu, and Changsha increased by 3.12%, 3.11%, 2.77%, 2.43%, and 2.42% respectively month-on-month, ranking among the top five rental growth rates in second-tier cities. Among second-tier cities, only Tianjin, Dalian and Fuzhou saw housing rents fall month-on-month in July 2020. Among them, Tianjin fell by 0.01% month-on-month, Dalian fell by 0.1% month-on-month, and Fuzhou fell by 0.13% month-on-month. The rental decreases were all relatively small. This shows that the economies of second-tier cities have also entered a stage of positive recovery after the epidemic.

The "scissor gap" between house prices and rents may still continue to expand

First, despite the impact of the epidemic, house prices in core cities have continued to rise for five consecutive months, with first-tier cities leading the growth rate. Unlike housing rents, which have continued to fall due to the epidemic, housing prices in core cities have continued to rise despite the impact of the epidemic. The Weifang Core Index, which reflects changes in comprehensive housing prices in 24 core cities, shows that in July 2020, the Weifang Core Index rose 0.6% month-on-month, marking the fifth consecutive month of month-on-month house price growth. Compared with the periodic low in February 2020, housing prices in core cities have increased by 4%.

Second-hand housing transaction volume increased. Since March 2020, the transaction volume of second-hand housing has rebounded rapidly.

The Weifang Transaction Volume Index, which reflects the transaction volume of second-hand housing in key cities, shows that in July 2020, the second-hand housing transaction volume index in the 10 major cities was 243.88 points (taking the transaction volume in January 2017 as 100 points), although it was slightly lower than the previous month. There has been a decline, but it is still at historically high levels. The increase in second-hand housing transaction volume is due to factors such as the release of accumulated demand affected by the epidemic and short-cycle fluctuations.

House prices in first-tier cities have risen relatively quickly, while those in second-, third- and fourth-tier cities have grown relatively slowly. The Weifang City Classification Index shows that in July 2020, house prices in first-tier cities increased by 1.7% month-on-month, with a relatively fast growth rate; second-tier cities increased by 0.27% month-on-month, third-tier cities increased by 0.43% month-on-month, and fourth-tier cities increased by 0.25% month-on-month. House prices averaged Steady but rising. After a brief decline between March and May, house prices in third- and fourth-tier cities have risen again.

Second, the "scissors gap" between housing prices and rental trends may still expand. In recent years, the growth rate of housing prices has generally been higher than the growth rate of rents, and there was a "scissors gap" between the two. Since 2020, housing rents have generally shown a downward trend due to factors such as the epidemic, but housing prices are still rising. As house prices rise and rents fall, the "scissors gap" between house prices and rents continues to expand, and the risk of bubbles in the real estate market also increases. Although there was a seasonal increase in rents in July 2020, there is a high probability that rents will still fall after the peak rental season. If house prices continue to rise, the trend of divergence between house prices and rents will not change. In other words, if not effectively controlled, the real estate bubble may still expand.

After the epidemic, the economic situation improves, and there is more room for real estate regulation.

First, the macro economy has initially emerged from the shadow of the epidemic, and there is more room for real estate regulation. Judging from the experience of real estate regulation over the years, the regulation of real estate markets in various places is often subject to the economic situation, and it is difficult to maintain the strength of regulation. When there is a risk of a decline in economic growth, it is not only difficult to strictly implement real estate market regulation in various places, but some places may even use real estate as a means to stimulate the economy. At present, although the policy has clarified the overall guidelines of "housing for living, not speculation" and "not using real estate as a short-term means of stimulating the economy", there are still tight and tight considerations in the implementation stage of real estate market regulation in various places.

In the first half of 2020, economic growth was severely affected by the epidemic, with GDP growth -1.6% year-on-year, including -6.8% year-on-year growth in the first quarter and 3.2% year-on-year growth in the second quarter. In this context, even if it has become policy consensus not to use real estate to stimulate the economy, real estate regulation in some cities may still be substantially relaxed or even encourage home purchases. The tightrope on real estate investment speculation is even more difficult to enforce.

According to the Weifang Rental Core Index in July 2020, rents in core cities increased by 1.01% month-on-month. Since housing rents are driven by investment and employment activities, this indicates that economic fundamentals have substantially recovered from the impact of the epidemic and that future economic growth will improve. As the traditional peak season for the rental market, July only experienced a seasonal rebound. However, considering the comprehensive and serious impact of the epidemic on the economy, a seasonal rebound in rents can fully demonstrate the substantial improvement in economic fundamentals.

As economic fundamentals improve after the epidemic, the macroeconomy’s ability to withstand a cooling or downturn in the real estate market has also increased. The space for real estate regulation will be increased, and the confidence will be stronger, so that the strategy of "housing for living, not speculation" can be better implemented. The establishment of long-term mechanisms for the real estate market can also be expedited.

Second, the real estate market is structurally overheated and needs to be strengthened in a targeted manner. In 2020, although economic activities were severely affected by the epidemic, housing prices did not fall simultaneously. Housing prices in first-tier cities also experienced a structurally rapid increase, which is partly related to the withdrawal of funds from real funds into virtual funds. Although financial policy support is mainly targeted at small and medium-sized enterprises, the real economy's ability to absorb funds is limited and there is a strong willingness for funds to flow into the capital market.

Judging from market performance, the real estate market is structurally overheating. Among first-tier cities, with the exception of Beijing, the growth rate of house prices has expanded, and the rise in housing prices in Shenzhen has a huge impact on market expectations; house prices in second-tier cities are generally rising, and house prices in second-tier cities such as Dongguan, Nantong, Ningbo, and Wuxi are also rising relatively fast; in 2020 Housing rents in core cities continued to fall and only began to rebound briefly in July. The ratio of house prices to rents is still expanding overall, and the foundation for rising house prices is not solid.

On the other hand, if housing prices rise faster than income, it means that residents’ basic living costs will increase, which will also squeeze actual consumption capacity and be detrimental to the realization of the domestic cycle.

In the first half of 2020, due to the major impact of the epidemic on the economy, it was difficult to effectively implement real estate regulation. As the economy recovers after the epidemic, it is necessary to increase regulation in a targeted manner to curb the structural overheating of the real estate market, reduce macroeconomic risks, promote consumption levels, and realize the domestic cycle.

The focus of real estate regulation should shift from the demand side to the supply side in a timely manner

To promote the formation of a new development pattern and resolve macroeconomic risks, we need to adhere to the principle of "housing for living, not speculation" to curb the expansion of real estate bubbles. In the past, real estate regulation focused on the demand side, focusing on curbing speculative demand for housing investment. This has achieved certain results, but it has not fundamentally solved the problem of the mechanism of bubble generation. Affected by the epidemic, the macroeconomic and real estate market structures have undergone major changes. After the epidemic, both the macroeconomic and the real estate market may experience structural overheating. The focus of real estate regulation should be timely shifted from the demand side to the supply side, focusing on taking measures from the perspectives of land, finance and city governments to establish a long-term mechanism to inhibit the occurrence of bubbles.

First, through health classification evaluation management, the city government’s main responsibility for stabilizing the real estate market is consolidated. Although it is very clear that city governments have the main responsibility to stabilize the local real estate market, it is still difficult to implement it. In order to further consolidate the city government's main responsibility for stabilizing the real estate market, real estate market health evaluation and classified management can be considered as a supplement to the main responsibility and accountability system. On the basis of scientific evaluation of the health of the real estate market in each city, it is managed by labeling, classification and grading. Different land, financial and tax policies are adopted according to different health levels. Adopting different real estate-related policies for cities with different health levels can prompt city governments to proactively take relevant measures to stabilize the housing market.

Second, promote the reform of the housing land system in conjunction with the reform of collective land entering the market. The newly revised Land Management Law has created certain legal conditions for breaking the land supply monopoly and promoting the direct entry of commercial collective construction land into the market. On this basis, we can further promote the implementation of collective land use projects such as building rental housing on collective land, accelerate the exploration of orderly transfer channels for non-commercial collective construction land such as homesteads, and promote the formation of a unified urban and rural construction land market.

Further improve the housing supply system. Divide small plots of land for sale and simplify construction application and certification procedures. Under the premise of unified planning, individuals or institutions will be supported in purchasing land to build self-occupied housing, and certain financial and tax policy support will be provided. Develop the construction agency market. Strictly limit the scope of shed renovation and avoid including real estate development projects in the scope of shed renovation.

Third, deepen housing finance reform. Currently, housing mortgage loans are excessively concentrated in commercial banks, and policy financial support for residential housing is low. There are phenomena such as concentrated risks, high dependence on the real estate market for commercial bank performance, and high average interest rates. Establish a non-profit policy housing bank to support households in improving their housing standards at low cost and deepen the reform of the housing provident fund system. Further reduce commercial housing loan leverage. Try to issue REITs based on home mortgage loans, etc.