It went viral across the internet over the weekend, with a series of policies rolled out in tandem: promoting the sale of completed existing homes, extending the maximum term of personal housing loans to 40 years, and meeting the reasonable financing needs of real estate developers on an equal basis... The real estate sector has welcomed a "combination punch" of policies, and the latest interpretation is now released.
Multiple government departments have rolled out a package of policies to accelerate the construction of a new development model for the real estate sector
On August 28, China's real estate industry witnessed a landmark major policy adjustment. Multiple departments including the Ministry of Housing and Urban-Rural Development, the People's Bank of China, the National Administration of Financial Regulation, and the China Securities Regulatory Commission have successively issued a number of high-profile documents, launching a package of reform measures covering the commercial housing sales system, credit management for real estate enterprises, capital market financing channels and other areas, with both the reform intensity and coverage breadth being extremely rare.
Many interviewed experts said that the policy "combined punches" launched simultaneously by multiple departments are a full-chain institutional reconstruction covering commercial housing sales, credit management and capital market financing, which will push the industry to bid farewell to the past development path of high leverage and fast turnover, lay a solid institutional foundation for the new development model of real estate, and help promote the high-quality development of the real estate market.
Improve the commercial housing sales system and vigorously and orderly promote the sale of completed commercial housing
On August 28, three departments including the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources, and the National Administration of Financial Regulation jointly issued the Notice on Improving the Commercial Housing Sales System (hereinafter referred to as the Notice), which clearly proposes to improve the pre-sale management of commercial housing, vigorously and orderly implement the sale of completed commercial housing, and strengthen the coordination of policies and measures.
In 1994, the Urban Real Estate Administration Law established the commercial housing pre-sale system at the legal level. Since then, the pre-sale model has gradually become the mainstream way of new home sales in China, which has gone through more than 30 years. The latest Notice does not completely abolish the pre-sale system in a one-size-fits-all manner, but emphasizes "seeking progress while maintaining stability, establishing the new system before abolishing the old one, and steadily promoting the reform of the commercial housing sales system".
Yan Yuejin, Vice President of the Shanghai E-House Real Estate Research Institute, said that the Notice systematically implements policies from multiple links such as pre-sale, capital, completed housing sales, land, and financing, which not only meets the requirements of the new real estate development model, but also provides a solid institutional foundation for the smooth market transformation and the protection of home buyers' rights and interests. At present, the real estate industry is shifting from "pursuing quantity" to "pursuing quality", and the improvement of housing quality has become the key. Promoting the reform of the sales system and introducing the completed housing sales model will help optimize the new pattern of housing consumption from the transaction end, improve product quality and transaction safety, and better adapt to the new stage of industry development.
"Since the beginning of this year, many regions have increased the number of land plots for completed housing sales in land supply, and some cities have also seen completed housing sales projects, and the market's demand for supporting systems is increasingly urgent." Yan Yuejin pointed out that the Notice clearly supports all regions to promote reforms steadily, orderly and step by step in light of actual conditions, which is conducive to releasing the positive effect of policies.
Zhao Xiuchi, Dean of the Beijing-Tianjin-Hebei Real Estate Research Institute of Capital University of Economics and Business and Vice President of Beijing Real Estate Law Society, believes that completed housing sales will gradually become the mainstream of the market in the future, which will put higher requirements on the capital strength, project management capabilities and product quality of real estate enterprises, accelerate the survival of the fittest in the industry, and further promote the high-quality development of the real estate market.
In the view of Li Yujia, Chief Researcher of the Guangdong Provincial Housing Policy Research Center, the Notice aims to implement the spirit and requirements of "improving basic systems such as commercial housing development, financing and sales" put forward in the national 15th Five-Year Plan Outline, build a new development model for China's real estate, and promote high-quality development. At the same time, the core of improving the commercial housing sales system is to vigorously and orderly promote completed housing sales. Under the completed housing sales model, the newly added supply will completely realize "what you see is what you get", and the industry will gradually bid farewell to "homogeneous competition and low-level supply".
Establish the lead bank system, with the maximum loan term for housing loans extended to 40 years
On the same day, the People's Bank of China and the National Administration of Financial Regulation jointly issued the Opinions on Reforming and Improving Real Estate Credit Management to Accelerate the Construction of a New Real Estate Development Model (hereinafter referred to as the Opinions). Focusing on the credit needs of the whole life cycle of real estate development, construction, sales and operation, the Opinions define loan varieties in sub-sectors such as commercial housing, indemnificatory housing, rental housing and commercial real estate, and build a comprehensive and orderly connected real estate credit product system.
Dong Ximiao, Chief Economist of China Merchants Union Consumer Finance Co., Ltd. and Deputy Director of Shanghai Finance and Development Laboratory, said that the Opinions are a systematic reconstruction of the real estate credit system. Through the core mechanism of "delivering the house first and then issuing the loan", combined with longer loan terms, more flexible restructuring arrangements and stricter capital supervision, it builds an institutional framework that is more friendly to home buyers, more robust to the real estate industry, and safer to the financial system.
In order to better meet the reasonable credit demand of the real estate sector, the Opinions focus on optimizing the two core systems of development loans and individual housing loans.
In terms of development loans, the Opinions clearly propose to establish a lead bank system for development loans. In this regard, Yan Yuejin said that this is an important new formulation in the new real estate development model, whose core is to strengthen the bank's full-process responsibility for project financing, implement the review responsibilities, and make capital supervision more in place.
At the same time, the policy incorporates the relevant loan experience of "ensuring the delivery of pre-sold housing" in recent years, clearly requiring that loans be provided to projects of real estate enterprises of all ownership types on an equal footing, which helps break the ownership barriers, enable all kinds of enterprises to obtain financing support based on project qualification and actual business conditions, and truly realize "treating all parties equally".
In terms of individual housing loans, the most concerned point in the market is that the maximum term of individual housing loans is extended from 30 years to 40 years.
"This is a major breakthrough in the field of real estate finance. Its most direct impact is to reduce the monthly principal and interest repayments, and significantly ease the monthly payment pressure in the early stage of home purchase." Yan Yuejin said that with a loan principal of 1 million yuan and an annual interest rate of 3%, under the equal principal and interest repayment method, the monthly payment for a 30-year loan is 4,216.04 yuan; after extending to 40 years, the monthly payment drops to 3,581.02 yuan, a direct reduction of 635.02 yuan per month, a decrease of about 15%.
Regarding some concerns existing in the current market, Yan Yuejin further pointed out that the extension of the term may increase the total interest expenditure, but its essence is "exchanging time for space", giving priority to solving the short-term cash flow pressure. At the same time, 40 years is not a mandatory repayment term. After home buyers' subsequent income increases, they can still optimize their debts through early repayment and other methods, which has full flexibility in practice. Therefore, the current policy can enable more demand to "dare to borrow and be able to borrow", which is an important embodiment of precise implementation of real estate finance policies.
Zhao Xiuchi said bluntly that the extension of the loan term is a "double-edged sword". On the one hand, it lowers the threshold of home purchase funds, but on the other hand, the total interest of the loan also increases. "In addition, it is possible that the home buyer has retired by the time the repayment is due, and whether they still have the repayment ability is an issue that needs to be considered. Therefore, home buyers need to judge the loan term according to their own specific situations. Banks also need to carry out corresponding institutional design to prevent financial risks."
The Opinions also restrict the repayment methods, proposing that "loans with a term of more than 1 year shall be repaid with principal and interest on a monthly basis". Tian Lihui, Professor of Finance at Nankai University, pointed out that this essentially prohibits practices such as "interest-only repayment first and principal repayment later" and "balloon loan" that only pay interest in the early stage and defer the principal, avoiding the problem of continuous risk accumulation during the loan duration and the disconnect between cash flow and debt solvency, ensuring that residents are under real principal and interest repayment stress tests in every period, and preventing speculative home purchases and excessive leverage.
Build a multi-level financing support system to broaden the capital market financing channels for real estate enterprises
On the same day, the China Securities Regulatory Commission issued the Opinions on the Capital Market Supporting the Construction of a New Real Estate Development Model (hereinafter referred to as the CSRC Opinions), proposing to meet the reasonable financing needs of real estate development enterprises of all ownership types on an equal footing, and build a multi-level capital market financing support system of "equity - merger and acquisition - bonds - asset securitization - private equity real estate funds", which broadens the capital market financing paths for real estate enterprises in all directions.
Li Yujia analyzed that first of all, the CSRC Opinions focus on clarifying the reform of real estate development financing methods, promoting the shift from relying on the entity's credit to being based on the project situation, which echoes the project company system and lead bank system proposed by the Ministry of Housing and Urban-Rural Development, indicating that the financing function of real estate is weakened, and the "head-to-head" financing is gone forever.
Secondly, the CSRC Opinions will promote the transformation of real estate finance to a new model. In the past, banks profited from the large-scale growth of land mortgage and mortgage lending. In the future, they must turn to serving completed housing sales, explore financial support for stock revitalization and operation (rental housing and urban renewal), and explore the profit space belonging to banks in the process of realizing the transformation of the new real estate model.
Finally, the CSRC Opinions will provide financing innovation for urban renewal. The "financing - cash return" cycle of urban renewal is longer, and tools such as CMBS, real estate ABS, and REITs are more needed. Subsequently, whether the new financing model can emerge on a large scale and whether projects can form a sustainable and circular implementation are the key factors for the advancement of urban renewal.
The CSRC Opinions also pointed out that for the refinancing of listed real estate development enterprises, the focus will be on whether their internal control systems such as capital management, land acquisition and bidding, project construction and sales are sound and effective, and whether project development, registered capital payment, enterprise qualification and other aspects are compliant with laws and regulations.
"This is to control risks from the source, drawing lessons from the previous round of market development where some enterprises had non-compliant financing and blind scale expansion due to the lack of internal control, which eventually accumulated major risks. Plugging institutional loopholes and strengthening compliance are important shifts of this round of policies." Yan Yuejin said that the newly launched support policies are not simple "blood transfusion", but attach equal importance to "blood transfusion" and "plugging loopholes". While providing financing guarantees, they cut off the chain of non-compliant operations, which is conducive to promoting enterprises to establish a long-term healthy development mechanism and the overall high-quality development of the industry.
Tian Lihui said bluntly that real estate finance has shifted from a "100-meter sprint" to a "marathon", which does not test explosive power, but endurance, judgment and long-termism. Only by seeing through risks, finding the right direction and adhering to compliance can we truly help the real estate market develop steadily and healthily.
Multiple departments' policies work together to accelerate the construction of a new real estate development model
On the same day, the National Administration of Financial Regulation, together with relevant departments, reformed and improved the real estate financing system, and issued the Interim Measures for the Administration of Development Loans for Commercial Housing, the Interim Measures for the Administration of Individual Housing Loans, the Interim Measures for the Administration of Commercial Real Estate Loans, the Interim Measures for the Administration of Urban Renewal Project Loans, and the Interim Measures for the Administration of Trust Companies' Trust Business in the Real Estate Sector.
Yan Yuejin pointed out that a number of policies of the National Administration of Financial Regulation and the capital market support measures of the CSRC form a joint force, making efforts simultaneously from the two paths of bank loans and capital market, providing multi-dimensional financing support for the real estate industry, which marks that the new real estate development model has taken substantive steps in supporting financing systems, helping to further stabilize market expectations and promote the healthy development of the industry.
"On August 28, the Ministry of Housing and Urban-Rural Development, the People's Bank of China, the National Administration of Financial Regulation and other departments have intensively introduced a series of policies from multiple dimensions, whose core keyword is the new real estate development model." Yan Yuejin concluded that whether it is the reform of the pre-sale system and completed housing sales, the optimization of commercial bank loans (especially individual mortgages), or the capital market's support for real estate enterprise financing, all are guided by the new real estate development model, aiming to help the industry transform.
Zhao Xiuchi analyzed that there are three core signals of this round of package policies: First, institutional reconstruction is carried out through top-level design, with core departments such as the People's Bank of China and the Ministry of Housing and Urban-Rural Development making efforts simultaneously, covering the whole chain of sales, credit and financing. It is not a short-term stimulus, but lays the foundation for the new real estate development model proposed in the 15th Five-Year Plan. Second, the risk of unfinished buildings is eliminated, and the core mechanism is the full closed-loop management of funds, which ensures "what you see is what you get, and the property right certificate is delivered upon house delivery" from the source. Third, it forces the industry to transform. Developers must compete by products and quality, the past model of high leverage and fast turnover is completely terminated, and the future development of the industry will be more robust.
"From the demand side, a series of policies will boost market confidence, release rigid and improved housing demand, which is conducive to balancing the relationship between supply and demand and promoting the recovery of the real estate market." Zhao Xiuchi said.
This article is from the official WeChat account "China Fund News" (ID: chinafundnews), written by Zhang Ling, and authorized for release by 36Kr.