Housing companies placed high expectations on the National Day holiday week from October 1 to 7, also known as the Golden Week. A variety of discounts, lottery promotions, loans with favorable terms and other preferential measures were offered in sales offices across the country to boost purchase volumes. However, the overall market turnover in most cities was the lowest in many years during the seven-day holiday, data from Centaline Property showed. Analysts said that the industry is expected to pick up in the fourth quarter, tapping into pent up demand. The current cooling down is mainly due to the effectiveness of financial regulations, or the three “red lines” as outlined by China's top market regulator, aiming to avoid excessive financing, as well as tightened property purchasing policies China has implemented to guarantee stable and sound development of the real estate sector, which is gradually facing saturation.
Considering that the current inventory is relatively high and the real estate regulatory policy has become stricter, demand is being suppressed. Affected by the centralized management of real estate loans by banks, the payment cycle of real estate enterprises is longer, thus putting the real estate sector under short-term pressure, according to a research report by China Lianhe Credit Rating Co. The surface area of commercial housing sold in key cities decreased by 33% during the Golden Week compared with the same period in 2020. Transaction volume in first-tier cities was basically flat year-on-year, while the second-tier, the third-tier and fourth-tier cities were down more than 40% on a yearly basis. “In the first half of the year, we secretly opened sales of some of the properties in popular areas, in view of the huge crowds that would gather at sales offices. Now, some real estate developers are selling properties quietly because they want to slash prices,” a real estate agent surnamed Xu based in Beijing, told the Global Times. She further revealed that half a year ago, buyers had to pay a deposit, usually CNY10,000, that is not refundable to hold a property, with good units typically fought over by multiple buyers.
There is no need to be overly pessimistic for the current real estate market, as the recent credit policy caused an inflection point, Yan Yuejin, Research Director at Shanghai-based E-house China R&D Institute, said. “Although the move to lower interest rates is not obvious at present, banks are expected to increase quotas in the fourth quarter, which is clearly helping to support trading volumes. At the same time, due to certain policies in the third quarter, demand is obviously weaker and the wait-and-see mood has become prevalent. With the arrival of the fourth quarter, housing demand across all areas will likely be released, which will also help to clear inventory for developers and agents,” said Yan, as reported by the Global Times.
The real estate market is near saturation in China. By September, second-hand housing stock waiting to be sold totaled more than 3 million dwellings, according to a report from the E-house China R&D Institute. Over the next two years, the construction area of newly built commercial housing will reach 3.77 billion square meters. Assuming 100 sq m per unit, there will be 40 million unsold apartments in China in the next two years.