CRIC Real Estate: Real Estate Industry Enters a New Balance Period, 2025 is Expected to See a Comprehensive Stabilization after the Decline.

According to the research report by Ke Rui Real Estate, overall, the scale of real estate transactions in China decreased, with the decline narrowing throughout the year. The stabilizing effect on the market gradually took effect during the year. With more and more cities having land supply lower than the volume of new housing transactions, the industry has unquestionably entered the era of de-stocking. The new construction area is also accelerating its decline, leading to a narrowing of the industry's inventory. Looking ahead, Ke Rui believes that the industry is taking big steps into a new balance cycle. If the policy to stabilize the market can continue to exert force, transaction volume will continue to stabilize. It is expected that by the second half of 2025, core city house prices are expected to fully stabilize after a stoppage. At that time, although the industry's long-term inventory pressure remains high, from the demand side, the market will complete a phase of short-term adjustment, and buyer confidence will also see substantial recovery. The scale of annual transactions decreased, and the market stabilized gradually during the year, with a trend of stopping the decline in the fourth quarter. In 2024, the scale of new housing transactions in the industry decreased, with the total sales area and amount of commercial housing expected to be 970 million square meters and 9.6 trillion yuan respectively, a decrease of 13% and 17% compared to 2023, with the decrease in transaction area narrowing by about 1 percentage point compared to 2023. The decrease in transaction amount in 2024 was greater than that in transaction area, mainly due to the fact that the proportion of transactions in third and fourth-tier cities had already bottomed out in 2023 and the proportion of high-end transactions in 2024 did not expand further. In addition, the current downward cycle in house prices led to a larger year-on-year decrease in transaction amount. Compared to previous years, the total sales area of commercial housing has returned to the levels of 2009, while the sales amount has returned to the levels of 2015-2016. Based on the demand calculation model of the research center, considering that China's urbanization is still on the rise, and a large number of housing improvement demands have yet to be met, the conservative estimate of the annual incremental demand for national commercial housing should still be above 1 billion square meters. Currently, industry transactions are already lower than this actual annual demand increment. In terms of the comparison between "homebuying demand" and "actual home purchases", the industry's transaction side has entered a period of demand accumulation. Quarterly trends show that, benefiting from the timely promotion of market-stabilizing measures such as "strictly controlling the increase, optimizing the stock, and improving the quality" by central ministries and commissions, as well as the active implementation by local regulatory authorities, the industry's sales in 2024 followed an almost perfect "bottoming curve": - In the first quarter, the year-on-year decrease in sales transactions was the highest of the year, and the market performance was below expectations. The sales area of commercial housing in the first quarter decreased by 19.4% year-on-year, while the transaction amount decreased by 27.6%, both of which were the highest of the year. At the beginning of 2024, the industry had relatively positive expectations for the new housing market, but due to factors such as the high baseline for epidemic prevention and control in early 2023, insufficient high-quality supply at the beginning of the year, and the continuous recovery of homebuying expectations, the actual transaction performance fell short of expectations. - In the second quarter, the policy orientation clearly shifted towards de-stocking, and market confidence started to recover. The sales area of commercial housing in the second quarter was 250 million square meters, down 18.6% year-on-year, a narrowing of 0.8 percentage points from the first quarter, while the transaction amount decreased by 22.7% year-on-year, a narrowing of 4.9 percentage points from the first quarter. After the Politburo meeting in April, the industry's financing received multiple favorable policies. On the consumer side, the down payment ratio was lowered to 15%, the lower limit on mortgage rates was lifted, the interest rate on housing provident fund loans was reduced, and LPR policies were adjusted. On the corporate financing side, the establishment and acceleration of the real estate financing coordination mechanism, nearly trillion yuan of financing quotas approved for the white list projects, and the central bank's introduction of re-lending tools to support the local state-owned assets in de-stocking were implemented. At the local level, market-stabilizing policies continued to be implemented, "substitution of old for new" policies expanded in major cities, and the gradual recovery of the housing transaction chain between primary and secondary markets began. The year-on-year decline in new housing sales area narrowed month by month from April to June, with the decline in June reaching only 14%, showing significant improvement compared to the beginning of the year. - In the third quarter, the transaction volume cyclically declined, with the year-on-year decline narrowing continuously. The third quarter is traditionally a slow season for the industry, with a decrease in sales area of about 10% compared to the second quarter, but still showing marginal improvement compared to the same period in 2023. The sales area in the third quarter decreased by 12.7% year-on-year, a narrowing of 5.9 percentage points from the second quarter. The Third Plenary Session of the 19th Central Committee in July proposed further strengthening the autonomy of policy implementation tailored to local conditions by supporting diversified housing demand for resident improvements. The sales area of new housing in each month of the third quarter continued to narrow year-on-year, with the year-on-year decline in September narrowing to 11%, reaching a new low for the year. - In the fourth quarter, policies clearly aimed to "stop the decline and stabilize", and transaction volume stopped declining and began to stabilize. Since the end of September when the Political Bureau meeting set the future development direction, with a clear emphasis on "strict control over new increases, optimization of existing stocks, and improvement of quality", major market-stabilizing policies have been continuously released at the central level. In October, the State Council Information Office press conference mentioned the real estate sector for the third time, boosting industry confidence. In November, the Ministry of Finance lowered the deed tax, value-added tax, and land value-added tax, while the Ministry of Housing and Urban-Rural Development expanded the scope of urban village redevelopment. The Ministry of Natural Resources proposed the use of special bond funds to repurchase idle land for stockpiling. In December, the Political Bureau meeting made it clear that a moderately loose monetary policy would be implemented, and reiterated the importance of "stabilizing the real estate market." According to data released by the Ministry of Housing and Urban-Rural Development, new home signings in October and November increased month-on-month for two consecutive months. According to statistics from the National Bureau of Statistics, the sales area of new homes in October stopped falling year-on-year, and in November, it increased by 3%, marking the first positive year-on-year change in commercial housing transactions since the second half of 2023. Looking at the development trend of new housing transactions throughout the year, with the accumulation and display of positive factors in the real estate market, market confidence and home buying expectations are gradually strengthening. As the effects of the large amount of stock and incremental policies are shown, the performance of future new housing sales will continue to stabilize, with the year-on-year decline in commercial housing sales amount and area gradually narrowing month by month, demonstrating this trend. With the continuous improvement in the performance of new housing sales, the industry is expected to formally enter a new cycle of stabilization in sales and restoration of confidence in 2025. New construction and completion area has synchronously decreased with industry inventory, both below 800 million square meters. Under the main theme of de-stocking in the industry for the whole year, the newly started and completed areas continued to decrease. It is expected that in 2024, the completed area and newly started area will both decrease by more than 20% year-on-year, with both being within 800 million square meters. The difference between newly started and completed areas has remained within 5% for the second consecutive year, prompting a reduction in the industry's construction scale and pressure to complete buildings.Continuous reduction. It is expected that the newly started construction area will be smaller than the sales area of commercial housing for the third consecutive year, and the expected difference will further expand, exceeding 2 billion square meters, accelerating the industry's destocking speed.Looking at the completion scale alone, after a year-on-year increase in 2023, there was a decline in 2024, mainly due to a large number of completed and delivered buildings in 2023, resulting in a short-term increase in the base. As completed commercial housing transactions gradually become the main force in completion housing after 2022, consistent with a 24% decrease in new housing transactions in 2021-2022, the completion area in 2024 has changed from an increase to a decrease year-on-year, with a decline of 20% within reasonable range. In terms of new construction, in line with the directives of central ministries to "strictly control the increase," it is expected that for the third consecutive year, the year-on-year decline will exceed 20%, and the decline will continue to be greater than the decrease in commercial housing transaction area. Faced with the challenge of destocking in the current industry, in the era of a nearly halved peak in sales scale, reducing new supply is the most effective destocking measure. Faced with the financial pressure brought about by the reduction in land transfer income, local governments have continued to make resolving inventory risks their top priority in recent years, enduring hardships and moving forward, reducing land transfers year after year, thereby reducing new construction scale and continuously alleviating industry inventory pressure. On a monthly completion level, the year-on-year decline has continued to slowly expand. At the cumulative growth rate level, in the first quarter of 2024, the cumulative growth rate of completion area changed from an increase to a decline, returning to a negative growth of -20%, and subsequent quarterly cumulative declines increased month by month, reaching 22% by June, and 26% by November, the largest cumulative decline since 2015. Looking at individual months, due to the relatively high base in 2023, the year-on-year trend of monthly completions remained weak, with the smallest declines in April and May, which decreased by 19% and 18% compared to the same period last year. In the second half of the year, the year-on-year decline in monthly completions further expanded, with declines of more than 30% in August, September, and November. However, considering the narrowing of the industry's new housing sales scale and the impact of the high base in 2023, the decline in completion area in 2024 is still within expectations. In sync with the shrinking land transaction scale and industry-wide destocking efforts, the new construction area in 2024 continued the downward trend seen since 2022. The new construction area has continued to decline year-on-year since 2024, with the year-on-year decline slowly narrowing in the first three quarters and expanding again in the fourth quarter. Influenced by the continuous shrinkage in land transaction scale, the new construction area in 2024 is expected to hit a new low since 2014. Compared to new housing sales, the cumulative decline in the new construction area is larger in each month of the year, always exceeding the decline in new housing transactions by over 4 percentage points, and has expanded to 11 percentage points by November. Despite the return to positive sales in the fourth quarter, the new construction scale is still accelerating its decline, further alleviating industry inventory pressure. Looking at the current development trend, the continued low level of year-on-year new construction before the construction area falls to a suitable scale is beneficial for the continuous stable development of the industry. It is expected that in 2025, the new construction area will continue to remain at a low level. However, considering that the new construction area in 2024 is already more than 2 billion square meters lower than the new housing sales area, this is enough to ensure a reasonable speed of destocking in the industry. In order to maintain an appropriate level of incremental development in the industry, it is expected that the year-on-year decline in the new construction area in 2025 will shrink. The industry is entering a new balance cycle, with sales scale bottoming out Facing the objective fact of nearly halving the sales scale over three years, under the inertia of accumulated investment in previous years, inventory pressure has become a challenge that most cities must face, doubling from 2021. Fortunately, the industry's inventory indicators finally saw substantial improvement in 2024. With more and more cities seeing land transfer volumes lower than new housing transactions, the industry unquestionably entered the destocking era, with the new construction area accelerating its decline, and the industry's narrow inventory scale rapidly shrinking. In addition, the improvement in sales indicators since the fourth quarter means that the industry is steadily entering a new balance cycle. If market-stabilizing policies can continue to be implemented, transaction volumes stabilize, it is expected that from the second half of 2025, core city house prices will have the potential to stop falling across the board. At that time, even though the industry's long-term inventory pressure remains high, from a demand perspective, the market will complete a phase of short-term adjustment, and buyer confidence will see substantial recovery. Specifically: Firstly, in 2025, commercial housing sales are expected to stabilize, with the total area and amount for the year remaining flat. Since the second half of 2024, with the gradual recovery of the first- and second-hand housing transaction chains, coupled with the push from developers to improve quality, the proportion of first-hand housing transactions continues to increase. From October to November 2024, national commercial property transactions increased year-on-year for two consecutive months. With the recovery of residents' housing purchase expectations, if the industry's new housing demand in 2025 can be steadily released, the total transaction volume is expected to cease the steady decline seen over the past three years and officially reach a bottom. Looking at the development trend, more cities and high-quality areas will likely see a revival in sales confidence. The rise and fall of core areas in different regions is also expected to move from differentiation to convergence gradually. Secondly, the industry's financial situation is continuously improving, supporting a slight year-on-year increase in completion area. Thanks to the strong push for market stabilization policies by the central government, the industry's financing situation is continuously improving. By the end of November 2024, 3.24 million units of completed housing were handed over through a tough battle in housing for keeping promises on delivery nationwide, with the approved loan amount for projects on the national whitelist reaching 3.6 trillion yuan. In addition, with the implementation of ultra-long-term special treasury bonds, it is expected that the industry's completion area will achieve a small increase of 5-10% in 2025. Thirdly, destocking remains a top priority at the present stage, compounded by the easing of monetary policy to alleviate local fiscal pressure, new construction in 2025 is still expected to achieve a decrease of around 10%. Despite the improving demand side, based on the huge inventory pressure in the industry, "strict control of increase" will remain one of the main themes of industry development for a considerable time. Based on statements from the December 2024 Politburo meeting, a moderately loose monetary policy will be implemented in 2025. Under looser debt indicators, the reduction in local fiscal pressure will support the continued decrease in the scale of new construction, reduce the quantity while improving quality on the supply side, widen the gap between new construction and new housing sales, and drive the industry to accelerate destocking. Finally, in line with the inventory reduction, investment in development is expected to continue to decline by around 10%. With confidence stabilizing on the demand side, the new construction and completion areas have the potential to mutually increase year-on-year slightly.There is also hope for a stop in the decline, but in terms of development investment, influenced by the overall decrease in industry inventory size, with the continuous decrease in construction scale, it is expected that development investment will continue to decline for one to two years."Bonjour, comment a va ?" "Hello, how are you?"