Tianfeng Macro: "New Policy on Real Estate" has been in effect for a month, transaction volume rebound significantly exceeds seasonality.

The "929 Real Estate New Policy" has already passed its first month, and compared to the previous rounds of local policy relaxations, this time there are similarities as well as differences. The main difference is that the policy effects are more pronounced, and the rebound in transaction volume significantly exceeded seasonal expectations. On November 1, the Ministry of Housing and Urban-Rural Development released the nationwide signed data for commercial housing for the first time, showing a significant improvement in transactions. In October, when new and existing homes are combined, the total transaction volume increased by 3.9% year-on-year, marking the first growth after eight consecutive months of decline since February this year. From a volume perspective, the overall transaction volume of the Chinese real estate market may have already reached or be close to achieving a "bottoming-out stabilization" status. Since the relaxation of real estate purchase restrictions in the four first-tier cities at the end of September, transactions have become more active. In the six weeks after the "929 New Policy," the total transaction volume of new and existing homes in Beijing, Shanghai, Guangzhou, and Shenzhen increased by 19.1%, 40.1%, 1.5%, and 86.5% year-on-year respectively, far exceeding the national average. This rebound intensity was not seen after the "517 Real Estate New Policy." In the six weeks following the "517 New Policy" (May 18 to June 21), the total transaction volume of new and existing homes in Beijing, Guangzhou, and Shenzhen (missing Shanghai data prior to September 2023) remained flat compared to the previous year, much lower than the 20.9% year-on-year increase after the "929 New Policy." The unexpected prosperity of the market after the "929 New Policy" is closely related to top-down policy adjustments. Firstly, a positive change in the attitude towards the real estate market was observed after the political meeting on September 26, which for the first time explicitly stated the requirement to "promote the stabilization of the real estate market." This, coupled with a shift in macro-policy focus towards stable growth, boosted market confidence. Secondly, since the joint press conference of the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission on September 24, there has been a series of intensive relaxations in credit policies, including reserve requirement cuts, interest rate cuts, reductions in minimum down payment ratios, reductions in mortgage interest rates, and adjustments in existing housing mortgage rates. The down payment ratios and mortgage interest rates have almost reached historical lows, lowering the market entry threshold for buyers. Thirdly, first-tier cities have simultaneously eased housing purchase restrictions. For example, Guangzhou completely lifted housing purchase restrictions, Shanghai relaxed restrictions on non-Shanghai residents buying homes and optimized housing credit and tax policies, Shenzhen relaxed zoning restrictions, abolished sales restrictions, and optimized housing tax and loan policies, while Beijing optimized housing loan policies and relaxed policies for both Beijing and non-Beijing residents. While the market has significantly rebounded in transactions after the "929 New Policy," there are also two areas that are similar to the previous policy relaxations. Firstly, resales have outperformed new home sales. In October, the signed transaction volume of new homes nationwide increased by 0.9% year-on-year, while the signed transaction volume of existing homes increased by 8.9% year-on-year. Existing homes continue to compete with new homes for sales through supply. Looking at transaction data from nine sample cities since July 2022, the growth rate of existing home transactions has consistently outperformed new home transactions, with the share of existing home transactions increasing significantly. In October, the share of existing home transactions in nine cities reached 55.5%, up 2.9 percentage points from September and 32.5 percentage points from the lowest point in October 2021. Secondly, while transactions are active, it is still an "exchange of price for volume." According to data from the China Index Research Institute, the average price of existing homes in the top 100 cities dropped by 0.6% month-on-month in October, with a 0.2% decrease in first-tier cities, showing a significant narrowing of the decline. However, the downward trend in prices has not ended. Adding listed properties to the consideration, the real estate market is currently in a state of "volume game." Although transaction volumes have increased, the number of listed properties has not decreased. Instead, there has been a trend of fluctuation and increase in listings after the new policy, indicating that after the market becomes active, more homeowners are preparing to sell properties, intensifying the bargaining between buyers and sellers. Considering the continuous price decline, there may still be some sellers lowering prices to take advantage of market heat. Increased transactions, price declines, and increased listings indicate that from multiple dimensions such as sales volume, prices, etc., the market may not have completely bottomed out yet. A market bottom usually appears with a decrease in transactions rather than an increase. The current issue in real estate is fundamentally a supply-demand problem. To stabilize the real estate market, the key is to reshape the supply-demand relationship by reducing housing supply or increasing housing demand. Although new housing supply has slowed down significantly, uncertainties remain regarding the feasibility of clearing excess housing inventory through acquisitions. We have previously analyzed that large-scale acquisitions by local governments may face pressures such as capital anchoring and operational losses and lack the space for large-scale borrowing or funding, with a focus more likely on the construction of affordable housing. Under the premise of voluntary participation, there may be uncertainties in the pace of progress. Acquired inventory will eventually return to the market in the form of affordable housing, not changing the overall supply-demand relationship. Affordable housing costs are lower and could potentially impact the surrounding real estate market. According to the Research Center of Ke and Ray, the introduction of affordable housing in Zhengzhou led to a continuous decline in new home prices. Housing demand should be considered as the "total account" of both the home-buying and rental markets, rather than solely focusing on the home-buying market. The new policies have indeed transformed some real housing demand from a wait-and-see attitude into action, but these individuals, as long as they reside in urban areas, will still need to rent a property even if they do not purchase one. The transition from renting to buying has increased the demand in the home-buying market, decreased available sales inventory, while also reducing the demand in the rental market and increasing available rental inventory. From this comprehensive perspective, the realization of true housing demand only changes the structure of real estate demand and does not change the total demand. Real housing demand is determined by slow variables such as population, urbanization rate, and per capita housing area. It is likely to have an "L-shaped" decline and increasing the total demand for real estate critically depends on stimulating more demands for better and larger living spaces or investment-oriented demands seeking returns. Investment-oriented demand primarily considers the rate of return. Despite the continuous decline in house prices, rental yield rates remain low. Considering liquidity discounts, the investment value is still insufficient. As of October this year, first-tier cities and 50 cities.The rental yield rates in 100 cities are 1.57%, 2.12%, and 2.27% respectively, all lower than the 30-year national bond yield rates by 76, 21, and 6 basis points. This means that there is still some room for housing prices to return to a reasonable valuation level. However, it is also important to note that the gap between rental yield rates and long-term bond rates is narrowing, with some cities already seeing rental yields surpassing 3%. Additionally, transaction volumes are showing buying and selling parties working through their differences. Therefore, from a fundamental perspective, prices may not have officially hit bottom yet, but it is highly likely that they are in the process of gradually stabilizing.Risk Warning There is uncertainty in real estate policy; macroeconomic fundamentals may affect residents' expectations and change real estate market transactions; there is a possibility of unexpected tightening of housing policies. This article is from the WeChat public account: Xue Tao Macro Notes; GMTEight Editor: Liu Xuan.