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REAL ESTATE: PRICE GROWTH IS EXPECTED IN CHINA IN 2022

In 2022, the Chinese real estate market will continue to develop steadily and there will be no major reversals. But you need to be vigilant, because some companies, for domestic buyers, there may be many risks that need to be identified.
How to assess the Chinese real estate market in 2022, what trends will appear and where are the risks?

First, what happened in the housing market in 2021. After Evergrande Group's debt crisis erupted, the Chinese real estate market was on the lookout, believing that this would be a major turning point in China's real estate market.

Thus, the recommendations contained in these analytical reports are that since China's real estate sector accounts for nearly 30% of GDP, over 60% of bank loans, and over 70% of residents' wealth (they consider the house inhabited by residents as investment), but in fact for the vast majority of residents with only one apartment, how much the price of a house rises, in principle, does not matter how much it represents family wealth) in order to ensure economic growth, prevent banking crises and prevent a decline in the welfare of residents , the current control is too large. The real estate control policy must be adjusted and the policy of excessive restrictions on the real estate market must be lifted so that the real estate market can return to the path of rapid growth.

However, Evergrande Group's debt crisis is just an isolated case: there are more than 100,000 real estate companies operating in the country, and there are no real estate development companies going bankrupt anywhere. In addition, despite the huge scale of Evergrande Group's development, it is nothing in the real estate market with annual sales of almost 18 trillion yuan.

More importantly, by October 2021, the real estate market was doing very well and there were no problems. So, in the absence of major emergencies, the likelihood of a sharp reversal of the domestic real estate market in November 2022 is not too high.

In fact, data released by the National Bureau of Statistics of China shows that from January to November 2021, investment in national real estate development amounted to 13,731.4 billion yuan, up 6.0% year on year, up 13.2% from January to November 2019, and the average two-year growth was 6.4%.

Among them, housing investment amounted to 10358.7 billion yuan, an increase of 8.1%. Commercial residential retail space was 1,581.31 million square meters, up 4.8% year-on-year, up 6.2% from January to November 2019, and up 3.1% on a two-year average. Among them, residential sales area increased by 4.4%. Commercial residential sales totaled 16,166.7 billion yuan, up 8.5%, up 16.3% from January to November 2019, and a two-year average of 7.8%. Among them, home sales increased by 9.3%.

These data illustrate the following issues: First, the current boom in the Chinese housing market has not stopped, and the area and volume of housing sales in 2021 are still hitting historical records. It can be said that since 2016, although various domestic media exaggerate how much strict real estate control policies have been introduced.

For example, in 2015, China's home sales were only 8.73 trillion yuan, and in 2016, the largest real estate macro-control policy in history was introduced, but home sales this year rose to 11.76 trillion yuan, an increase of 35%, and by 2020, home sales in the country amounted to 17.36 trillion yuan.

Over the past five years, home sales in the country have doubled, with an average annual growth rate of 20%. Of course, this growth is largely due to rising housing prices in various cities. This trend has not changed in 2021, and sales volumes in the domestic real estate market are also breaking records. Therefore, from the point of view of the situation in the real estate market in 2021, this trend in the domestic real estate market will continue in 2022 and there will be no reversal. This is driven by current real estate market interests and real estate politics.

Secondly, among the data published by the National Bureau of Statistics, there are several noteworthy data. There is significant regional differentiation in both housing investment and home sales. The central region performed the best, but the northeast region saw severe negative growth. This negative growth may be related to the economic performance and population mobility of these regions, and it is estimated that this differentiation will continue in 2022, forming a long-term trend that cannot be reversed with short-term policies.

Due to the debt crisis of the Evergrande Group, the enthusiasm of private developers to acquire land has waned. It also means that private developers are no longer as optimistic about the prospects for domestic real estate as they used to be, and state capital is entering the market instead. Pay close attention to what problems these changes cause. In addition to analyzing the actual market situation, as the policy of the domestic real estate market, the direction of real estate management policy is also an important factor.

Ahead of the Central Economic Working Conference, many analysts expected that in order to address real estate market risks such as Evergrande Group's debt crisis, the domestic real estate market would undergo major adjustments in 2022. For example, that the credit policy of banks will be completely relaxed.

Various restrictive control policies issued by local governments over the past few years will be cancelled. This expectation has been reflected in the stock market, and share prices of listed real estate companies have risen sharply these days. However, the Central Economic Work Conference is rolling out real estate work in 2022 to continue adhering to the position that homes are for living, not for speculation, to strengthen expectations and benchmarks.

In the long-term rental market, promote the construction of affordable housing, support the commercial housing market to better meet the reasonable housing needs of buyers, and implement the city's policies to promote a virtuous circle and healthy development of the real estate industry. This content has not changed much compared to the content of real estate macro control policies in previous years.

Since the principle of market positioning "housing, not speculation" was established in 2016, for a long time, various domestic real estate regulation policies have been the embodiment or implementation of this principle, but the degree of implementation varies every year.

Second, the “tri-stability” of real estate regulation policy (housing price stabilization, land price stabilization, and expectations stabilization) has been emphasized in the last few years, but it did not appear in the 2021 document and was replaced by “strengthening expectations and guidance”.
The home ownership rate of Chinese urban residents exceeds 89%, which should be the highest in the world. Apart from the housing shortage in the first tier cities and some cities, the rest of the cities are mostly in a state of housing surplus, especially in the third and fourth tier cities. Against this backdrop, no housing model in the world can adapt to China. Over the past ten years, mainland China has largely adopted the Hong Kong real estate model, but has only learned half of the Hong Kong model, such as high house prices and high land prices.

In addition, Singapore's housing model cannot be adopted from China, the government cannot allocate huge funds to build affordable housing, and at the same time, the high level of home ownership in Chinese cities cannot allow residents to return to the housing system.

In 2022, the risk in the Chinese housing market will be mainly related to housing prices, and if housing prices continue to rise, the risk in the housing market may be higher. Of course, there are two main risks to watch out for: first, in those cities that have already experienced a severe housing glut, and in those cities that have imposed caps on housing prices, real estate market expectations may change, which could lead to to lower property prices.

But in general, the Chinese real estate market in 2022 will develop steadily, and no major reversals are expected. This is the scenario that both central and local governments want to see, and this is also the goal of real estate control policy

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Created: 22 February 2022

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