• News
• 2024-07-19

Accelerated Land Reserves Spur Real Estate Chain

The current round of purchase and storage policies focuses on the supply side of the real estate market. Accelerating the purchase and storage process is expected to reduce inventory levels, improve the supply-demand relationship, and stabilize housing price expectations. The Third Plenary Session of the 20th Central Committee emphasized the need to accelerate the establishment of a housing system that combines renting and buying, and to accelerate the construction of a new model for real estate development.

The Central Political Bureau meeting held in April 2024 proposed, "In light of new changes in the supply and demand relationship of the real estate market and the new expectations of the people for high-quality housing, we should coordinate the study and formulate policies and measures to digest existing housing stock and optimize the increase in housing supply." Among them, the term "digesting existing housing stock" is the central government's clear stance on the issue of real estate de-stocking since 2015, and it also officially sets the tone for solving the current high inventory and price pressure problems in the real estate market.

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After the policy tone was set, "actively supporting the acquisition of existing commercial housing for use as affordable housing" (hereinafter referred to as "purchase and storage") has become an important means to promote the stable and healthy development of the real estate market, with more and more cities joining the ranks of purchase and storage.

On August 20, the Housing and Urban-Rural Development Bureau of Harbin City issued the "Harbin City Affordable Housing Allocation Management Method" to solicit opinions and suggestions from the public; on August 19, Changsha City Affordable Housing Construction and Development Co., Ltd. issued the "Notice on the Collection of Commercial Housing for Use as Affordable Housing", intending to carry out the work of acquiring unsold commercial housing for use as affordable housing; on August 16, Wuhan City's first single use of affordable housing re-lending to acquire existing commercial housing projects for use as affordable housing was officially launched...

According to statistics from the China Index Academy, about 60 cities have expressed their support for state-owned enterprises to acquire existing commercial housing for use as affordable housing, with more than 25 cities issuing collection announcements.

On August 23, Dong Jianguo, Deputy Minister of Housing and Urban-Rural Development, stated that in combination with the local real estate market situation, actively promote the work of acquiring existing commercial housing for use as affordable housing, promote projects that are ripe for conditions to complete the acquisition as soon as possible, and timely rent and sell.

Tianfeng Securities believes that recent authoritative meetings such as the central bank's work conference have repeatedly mentioned the full implementation of purchase and storage related work in the second half of the year. It is expected that more high-energy cities are expected to follow up quickly in the second half of the year, coupled with a significant contraction in land supply on the supply side, which will accelerate the balance of supply and demand in the real estate market across the country. In the future, if the issuance scale of special bonds for affordable housing projects is increased and used to acquire existing housing for use as affordable housing, it is expected to form a good supplement to the purchase and storage funds. The company is optimistic about the cyclical resilience of leading real estate companies with a wide layout in core cities, as well as the valuation flexibility of urban investment and local state-owned enterprises benefiting from the expected catalytic effect of purchase and storage.

Dongwu Securities also stated that China's real estate inventory is currently at a relatively high historical level, and the de-stocking cycle has increased. Drawing on the historical experience of the 2014 cycle, it is only when the de-stocking cycle decreases to a certain level that the starting point for the subsequent "quantity-price-supply and demand" positive cycle is initiated. This round of purchase and storage policies focus on the supply side, which is expected to reduce inventory levels, improve the supply-demand relationship, and stabilize housing price expectations; at the same time, it also helps the work of affordable housing and "ensure delivery of buildings".On June 20th, the Ministry of Housing and Urban-Rural Development convened a video conference on the acquisition of existing commercial housing as affordable housing, explicitly proposing to promote the effective and orderly implementation of the acquisition of existing commercial housing as affordable housing in cities at the county level and above. On June 24th, the Ministry of Natural Resources conducted a video training on the proper disposal of idle land, pointing out that the requisition and acquisition of land for affordable housing can be supported by funds such as local government special bonds.

The Central Political Bureau meeting held on July 30th emphasized active support for the acquisition of existing commercial housing as affordable housing. This move is beneficial for promoting the destock of existing commercial housing, aiding the healthy development of the real estate market, revitalizing existing resources, increasing the supply of affordable housing, and cooperating with the battle to ensure housing delivery and the "white list" mechanism to prevent and resolve real estate risks.

Under the guidance of policies, the pace of acquisition by various regions has accelerated. Statistical data shows that by the end of July, more than 60 cities have issued relevant acquisition policies, including Guangzhou, Hangzhou, Suzhou, Zhengzhou, Fuzhou, Changsha, Tianjin, Hohhot, Qingdao, Chongqing, Jinan, Kunming, Shijiazhuang, Guiyang, Huizhou, Dali, Changzhou, Guilin, Lincang, Luoyang, Nanyang, Jiangmen, Jiangshan, Jiyuan, Yueyang, Huaibei, Huainan, Lujiang, etc.

Among them, Guangzhou fired the first shot in the acquisition of existing commercial housing in first-tier cities on July 29th. Subsequently, Shenzhen took over the baton and announced the acquisition of commercial housing on August 7th for use as affordable housing. So far, half of the first-tier cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, have entered the acquisition process.

On the afternoon of August 7th, Shenzhen Anju Group published the "Notice on the Solicitation of Commercial Housing for Affordable Housing" on the "Shen Anju" public account. The notice stated that in order to actively build a "guarantee + market" housing supply system, following the principles of "marketization, legalization," and mutual voluntariness, enterprises affiliated with Shenzhen Anju Group plan to carry out the work of acquiring commercial housing for affordable housing. The scope of housing solicitation includes residential, apartment, dormitory, etc., with commercial housing nature within the scope of Shenzhen City (excluding the Shenzhen-Shanwei Special Cooperation Zone), giving priority to the selection of unsold buildings or units that can achieve closed management (housing sources), and it is necessary to meet four conditions: location, apartment size, convenience, and complete procedures.

Shenzhen Zhenye A, also controlled by Shenzhen state-owned capital, responded to investor questions on the interactive platform, stating that under the policy of "promoting demand + destock," Shenzhen Anju Group's acquisition may play a positive role in destock of Shenzhen's real estate market and stabilize the market, which is conducive to alleviating the financial pressure of real estate companies, and also helps to restore market confidence and increase the supply of affordable housing. The company will actively study relevant policies, strive for collaborative development opportunities, and strive to improve the level of product turnover.

Three major roles of acquisition

Tianfeng Securities stated that the "517" package of real estate support policies is mainly divided into two categories: one is the demand-side policy of reducing the minimum down payment ratio for personal housing loans at the national level, canceling the lower limit of personal housing loan interest rate policy at the national level, and reducing the interest rate of housing provident fund loans; the other is the supply-side policy of introducing 300 billion yuan of affordable housing reloan to support local acquisition of unsold existing commercial housing.

Tianfeng Securities believes that in terms of demand-side policies, whether it is the reduction of down payment ratio, the cancellation of the lower limit of housing loan interest rate, the decrease of housing provident fund loan interest rate, or the relaxation of purchase restriction policies, the main role is to better release the restricted housing demand. The "real estate acquisition" policy on the supply side mainly starts from "affordable housing construction."

On the one hand, according to Vice Premier He Lifeng's speech at the national video conference on ensuring housing delivery, "In cities with a large inventory of commercial housing, the government can purchase on demand and acquire some commercial housing at a reasonable price for use as affordable housing," that is, the fundamental purpose of acquisition is for affordable housing, and the requirement is to determine the scale of acquisition according to the need to build affordable housing.If the starting point of the "government's purchase and storage of housing" is "affordable housing construction," then the financial pressure of the purchase may not be significant. According to the national plan to build nearly 9 million affordable housing units during the "14th Five-Year Plan" period, with an average of about 1.8 million units per year and a single unit area not exceeding 70 square meters, if all sources of housing are raised through purchase and storage, approximately 1.3 trillion yuan per year would be needed.

If the acquisition is made at a 30% discount to the current average price of new houses, the funds required to complete the affordable housing construction plan during the "14th Five-Year Plan" period will be reduced to about 880 billion yuan per year. The rental yield will increase from the current 2.2% to 3.1%, which is higher than the current 10-year local debt yield of 2.5% and slightly higher than the upper limit of the rental housing purchase loan interest rate set by the central bank in the "Notice on the Pilot Program for Supporting Rental Housing Loans," which is 3%.

On the other hand, in this real estate purchase and storage policy, the central bank clearly requires that after the acquisition, it must be quickly allocated for sale or rent. This is also from the perspective of affordable housing operations, to reduce the vacancy period and improve the operational efficiency of affordable housing.

The advancement of real estate purchase and storage helps to alleviate the cash flow pressure of some real estate companies, but under the requirement of "quick sale or rent," the impact on the housing supply and demand gap may still need to be observed. However, the central bank also emphasized that local governments, workers, real estate companies, and banks voluntarily participate in the real estate purchase and storage as affordable housing. Under the premise of voluntary participation, the pace of progress may be uncertain.

Dongwu Securities believes that the role of the purchase and storage model mainly has three points: First, it provides an increase for affordable rental housing; second, it digests inventory to improve the supply and demand relationship and stabilizes housing price expectations; third, it alleviates the liquidity pressure of developers who are purchased and stored, and helps "ensure delivery of buildings." There may also be issues such as insufficient local government motivation due to coverage problems during the implementation process.

Role one: Provide an increase for affordable rental housing. During the "14th Five-Year Plan" period, the country plans to raise and build 8.7 million affordable rental housing units. As of the end of 2023, China has completed the construction of 5.73 million affordable rental housing units, with 2.97 million units left to be completed to reach the target. According to incomplete statistics, 22 cities set their annual allocation target for affordable housing at about 120,000 units at the beginning of 2024. Due to the downturn in the real estate market in recent years, local fiscal revenue has decreased, and the new construction model of affordable rental housing has encountered certain resistance. Converting purchased and stored housing into affordable rental housing can speed up the collection progress of affordable rental housing and fill the gap in affordable rental housing from 2024 to 2025.

At the beginning of 2024, many places have set a high target for the annual allocation of affordable housing, accounting for 10% of the transaction volume of residential commercial housing in 2023 in comparable terms; Beijing, Shanghai, Guangzhou, and Shenzhen's targets for affordable housing in 2024 are all 10,000 units, accounting for 15%, 7%, 14%, and 33% of the residential commercial housing in 2023, respectively. Considering that some areas have a high target for affordable housing and that affordable housing construction currently has support from fiscal funds, special bond funds, affordable housing reloan funds, and policy banks, the local "purchase instead of construction" "purchase and storage" policy can not only speed up the completion of the affordable housing allocation target but also alleviate the pressure of new housing "inventory."

Currently, some areas have introduced the application mechanism for affordable housing, with the sale price being "break-even and slightly profitable." The repurchase price considers factors such as inflation and depreciation. Since March, Fuzhou, Hangzhou, Xi'an, and other places have successively introduced affordable housing application plans; the allocation price is based on the principle of "break-even and slightly profitable," with many places proposing to determine based on covering the cost of allocated land and construction costs, plus a moderate and reasonable profit (for example, not exceeding 5%); the repurchase price usually considers factors such as house depreciation and loan interest on the basis of the purchase price; the main applicants are local families and single residents without their own housing or with a lower average area, and some areas prioritize groups with income difficulties.

Role two: Digest inventory to stimulate demand and stabilize housing price expectations. Since the beginning of 2022, the change in housing price expectations has greatly restricted housing demand: investment demand has significantly decreased, and the demand for waiting and watching is severe. According to the current pilot situation in some cities, the purchase and storage price is about 30% off the filing price. Considering that the price of some new housing projects at the end of the sales is also around 80% of the filing price or even lower, the purchase and storage price can to some extent become the price floor of the surrounding area, forming a certain price anchor effect, and stabilizing people's housing price expectations.

At present, the national inventory is at a relatively high historical level. Data from the National Bureau of Statistics show that as of the end of June, the national commercial housing unsold area is 738.94 million square meters, a year-on-year increase of 15.2%. Among them, the unsold area of residential housing increased by 23.5%.According to statistics from Dongwu Securities, the real estate inventory reached a historical peak in January 2015, with the narrow inventory of commercial residential buildings in 80 cities amounting to 578 million square meters. Subsequently, the government began to emphasize de-stocking, and after 2015, policies gradually took effect, with the inventory area of 70 cities continuously decreasing. By August 2017, the narrow inventory of commercial residential buildings in 80 cities had dropped to 396 million square meters. In August 2018, the real estate market cooled down, compounded by the impact of the COVID-19 pandemic in 2020. By September 2021, the narrow inventory had reached its highest point in five years at 531 million square meters, which is 92% of the 2015 peak. Starting in 2022, the real estate market entered a relaxation cycle, but as of March 2024, the narrow inventory of commercial residential buildings in China's 80 cities remained high at 488 million square meters, approximately 85% of the 2015 peak.

New housing sales have been declining continuously, and the de-stocking cycle has rapidly increased, currently reaching a new high since 2010 at 27.2 months. Looking at the data from the past decade, the first peak of the de-stocking cycle was in July 2014 at 21.4 months. After several rounds of policy relaxation, in December 2016, the de-stocking cycle for commercial residential buildings reached a low point of 8.9 months. Between 2017 and 2019, the de-stocking cycle for commercial housing stabilized, fluctuating around 10 months. In June 2020, the de-stocking cycle quickly rose to 14.7 months. Starting from the end of 2021, as the real estate market's prosperity declined, the de-stocking cycle continued to rise. As of March 2024, the de-stocking cycle has reached its historical peak, at approximately 27.2 months.

From the perspective of different cities, the inventory distribution in first, second, and third-tier cities is at 90%, 75%, and 96% of their historical highs, respectively, and has remained stable overall in the past year. The peak narrow inventory for first-tier cities was 45 million square meters in December 2014, and it was 40 million square meters in March 2024, about 90% of the historical peak; for second-tier cities, the inventory peak was 334 million square meters in September 2015, and it was 249 million square meters in March 2024, about 75% of the historical peak; for third-tier cities, the inventory peak was 209 million square meters in December 2020, and it was 200 million square meters in March 2024, about 96% of the historical peak.

According to Dongwu Securities' statistics, the de-stocking cycles for first, second, and third-tier cities have all reached historical highs, with the third-tier cities experiencing the fastest increase in de-stocking cycles. As of March 2024, the de-stocking cycle for first-tier cities is 20.9 months, 102% of the historical high (20.5 months in April 2020); for second-tier cities, it is 24.1 months, 104% of the historical high (23.2 months in February 2012); for third-tier cities, it is 32.7 months, 144% of the historical high (22.7 months in March 2012). The de-stocking cycle for third-tier cities has rapidly increased from 10.1 months in August 2021, with no signs of slowing down currently.

The third role is to alleviate the liquidity pressure on developers whose land has been requisitioned, aiding in the "delivery of buildings." As the real estate market's prosperity has declined in recent years, some developers have gradually lost their ability to finance through credit, and their operational cash flow has been constrained by declining sales. Requisition policies can alleviate the cash flow pressure on requisitioned real estate companies, thereby aiding in the progress of the "delivery of buildings."

As of June 2024, the inventory of existing commercial residential housing is about 380 million square meters, and the inventory of pre-sale housing is about 1.63 billion square meters. The inventory-to-sales ratio for existing residential housing is 17.9 months, but the broad inventory-to-sales ratio for residential housing still reaches 24.7 months.

Shenwan Hongyuan Securities stated that if the requisition policy is intensified and the collection scope is expanded to include pre-sale housing, to reduce the broad inventory-to-sales ratio of commercial residential housing to 18 months,参照 the unit price of allocated affordable housing for purchase (taking Xi'an as a reference, with the purchase price being about 50% of the regional commercial housing price), the required requisition funds may be around 2.3 trillion yuan. Under policy guidance, large-scale requisition may to some extent alleviate the drag on real estate development investment funds caused by the decline in down payments and mortgage loans, which is beneficial for the progress of resumption of work and completion.

If the requisition price is significantly lower than the investment cost of real estate projects, a more vigorous requisition may mainly help to alleviate the debt pressure on real estate companies. Some local areas have published application plans for allocated affordable housing, showing that their allocation unit price is 40% or less of the local newly built commercial residential housing (taking the average price of newly built commercial residential housing in August 2024 as an example). If the local requisition price generally takes the replacement cost of affordable housing as the upper limit, a more vigorous requisition support may mainly help to alleviate the debt repayment pressure on real estate companies.

In addition, Haitong Securities also believes that the long-term significance of real estate requisition is obvious: first, it increases the credibility of the market with unlimited credit, conveying a bottom-of-the-industry signal; second, it may have a more direct significance for stabilizing the transaction scale in second-tier cities.

Firstly, from the perspective of game theory, the government's entry into requisitioning is equivalent to informing the market that the ultimate unlimited credit person recognizes the current price and has sufficient credit and liquidity to engage in game playing with market sellers. If the market believes that the ultimate credit person will not suffer long-term losses, then the reasonable thinking should be to place the listed price above the government's purchase price. Based on the above judgment, the government's long-term purchase of houses is of great importance in reversing the market downturn and stabilizing price expectations.Secondly, the current government's acquisition of commercial housing built by developers may have greater significance for second-tier cities. First-tier cities with high-quality plates have strong demand, and recent policies have been intensified, providing a bottoming-out effect that allows for a recovery in the scale of new housing sales. From the perspective of the actual operational space for inventory collection, it may not currently have strong operability in assets (as the return on investment is difficult to meet the standards).

For representative second-tier cities, the high base effect in the same period of 2023 is still quite significant, and the expected year-on-year decline in the second quarter of 2024 is still expected to be large. These markets have a large scale and face significant pressure for year-on-year adjustments, which to some extent slows down the overall recovery pace of the city. In addition, among second-tier cities, there is limited room for policy optimization in many cities, and the market still faces short-term inventory pressure, requiring a longer time for recovery. From the perspective of inventory collection, some second-tier cities currently have rental yields close to the 2.5% level, which has the actual operational space for collection. If policies can be effectively implemented, it will have practical significance for stabilizing market supply and demand structure and effectively promoting a new balance in the industry.

For third and fourth-tier cities, the space for a significant decline in new housing sales area may be limited, and the short-term sales scale is expected to stabilize at a low level. As the high base effect gradually weakens, the year-on-year decline in sales area in the second quarter may narrow. From the perspective of inventory collection, the direction of greater effort for third-tier and lower cities should focus on acquiring developers' inventory land.

Therefore, Haitong Securities believes that regardless of whether it is secured housing re-lending or housing rental group purchase loans, commercial banks must participate in the source of funds. From the perspective of commercial banks' asset security and rental yield requirements, most of the funds will eventually be more inclined to invest in second-tier and surrounding cities (the logic is that if first-tier cities can achieve a return level of more than 3%, the market itself can digest it, and third-tier and lower cities are not the first choice for commercial banks). Considering 2023, second-tier cities roughly correspond to a residential sales scale of around 4 trillion yuan (the market is still declining in 2024, and the total data is expected to be lower than the above scale), and it is an important land reserve area for listed companies. Therefore, if the current 500 billion yuan of re-lending can effectively promote collection within the above 4 trillion yuan sales scale area, it is equivalent to stabilizing more than 10% of market demand, which is of great significance for repairing the market and stabilizing corporate entities.

Diversified Collection Models

Since May, local collection work has been accelerated, and many regions have introduced relevant policies to purchase existing housing through models such as transforming into secured housing, rental institution purchases, and demolition and resettlement. With the joining of more cities, the collection models in various places have gradually diversified.

For example, Lin'an District of Hangzhou plans to purchase a batch of commercial housing within the district as public rental housing. The area of the purchased housing is原则上 not to exceed 10,000 square meters. It is clear that the housing is purchased in whole buildings as the basic unit, with a single set of building area not exceeding 70 square meters, and a certain proportion of parking spaces must be matched; Zhengzhou Urban Development Group Co., Ltd. plans to fully implement the purchase of 5,000 sets of second-hand housing throughout the year, which will be transformed into rental-type secured rental housing in Zhengzhou City, and will be unifiedly rented through the "Zheng Hao Ban" APP.

GF Securities and Shenwan Hongyuan Securities have sorted out different mechanisms in various places, roughly dividing them into three categories: "Rental Institution Purchase Model", "Conversion to Secured Housing Model", and "Demolition and Resettlement Model". The "Rental Institution Purchase Model" is a market-oriented rental institution purchasing existing commercial housing from developers for increasing rental housing sources, etc.; the "Conversion to Secured Housing Model" is a local government organizing local state-owned enterprises to purchase existing new commercial housing or second-hand housing from developers or residents for use as rental-type secured housing or allocated-type secured housing, etc.; the "Demolition and Resettlement Model" is for urban village transformation, railway construction, and other projects involving demolition and resettlement, purchasing existing commercial housing to replace the construction of resettlement housing.

The "Rental Institution Purchase Model" is most typical in Chongqing. At the beginning of the year, under the central bank's rental housing loan support plan, Chongqing's local state-owned rental companies had already purchased 4,207 sets of existing commercial housing to convert to rental housing. The capital source of the purchase project was the Chongqing Jianyu Housing Rental Fund, and the supporting funds came from loans related to the rental housing loan support plan. Subsequently, under the policy guidance of the Central Political Bureau meeting in April, Chongqing's state-owned rental companies issued an announcement in early May to purchase a batch of existing houses from real estate companies to increase the supply of long-term rental housing.

The "Conversion to Secured Housing Model" takes Lin'an District of Hangzhou as an example. In 2024, it plans to purchase 10,000 square meters for use as public rental housing. The main sources of funds for allocated-type secured housing are local finance, self-raised funds by enterprises (state-owned enterprise urban investment), development loans from the National Development Bank, local special bonds, and central finance as a reward instead of subsidies for special funds, central budget fixed asset investment subsidy funds, etc.The "demolition and relocation model" has already been implemented in Guangzhou. On May 30th, Xintang Town in Zengcheng District, Guangzhou, issued a notice titled "Notice on Soliciting Registration for Eligible Commercial Relocation Housing Sources for the Guangzhou (Xintang) to Shanwei Railway Project (Xintang Section)", mentioning the intention to use the purchase of marketized commercial housing as the relocation housing source for this project, and calling for eligible residential housing sources (real estate companies) from society.

Guo Jin Securities stated that under the guidance of demand-driven ordering, localities may choose to acquire existing housing models based on local rental return rates, price-to-income ratios, population, home ownership rates, and other factors to adapt to local conditions.

From the perspective of demand, the "rental institution acquisition model" and the "transformation into affordable housing model" are suitable for areas with low housing ownership rates and continuous population growth. Data from the seventh national population census in 2020 shows that the home ownership rates in 18 provinces and municipalities including Chongqing, Sichuan, and Jiangsu are below 85%, and in Guangdong, Beijing, and Shanghai, the home ownership rates are even below 60%. Looking at the net inflow of permanent residents in various places over the past decade, Guangzhou, Chengdu, Shenzhen, Xi'an, and Hangzhou are in the top five, with a net inflow of more than 3.5 million people from 2014 to 2023. The low home ownership rate and large-scale population inflow both indicate a significant demand for housing rentals and affordable housing in these areas.

The "transformation into affordable housing model" may be more suitable for areas with high housing price-to-income ratios and an urgent need to improve the affordable housing system, such as Guangdong, Shanghai, Beijing, Hangzhou, and other places. Data from the seventh national population census shows that in areas with high housing price-to-income ratios like Guangdong, Beijing, Shanghai, and Zhejiang, the home ownership rate is less than 65%, and the proportion of public rental housing is 5% or less, indicating an urgent need to improve the affordable housing system. At the same time, under the guidance of the new real estate development model, in 2024, the four first-tier cities and core second-tier cities such as Hangzhou, Wuhan, and Chengdu have large-scale affordable housing construction plans, and their demand for acquiring existing housing for transformation into affordable housing may be relatively higher.

The "demolition and relocation model" is suitable for areas with many urban village renovation projects and a large number of self-built houses in towns. Demolition and relocation needs usually involve urban village renovation and land expropriation projects. By roughly measuring the potential scale of demolition and relocation based on the proportion of self-built houses in urban areas, it can be seen that the potential scale of demolition and relocation in central and western regions such as Hunan, Guangxi, and Henan is large, with the proportion of self-built houses in urban areas exceeding 16%; in the eastern region, the proportion of self-built houses in urban areas in Hainan, Zhejiang, and Shandong exceeds 12%, and the proportion of self-built houses in Fujian, Jiangsu, and Guangdong also exceeds the national average of 10%. Similarly, looking at the number of urban village renovation projects disclosed in various places for 2024, Chongqing, Chengdu, and Zhengzhou have a large number of urban village renovation projects, and Guangzhou, Chengdu, and Jinan have a high initial credit limit for urban village renovation, which may indicate a larger demand for acquiring existing housing for demolition and relocation.

In terms of the targets of acquisition, the details issued by many places show that existing houses that have been built but not sold, and entire commercial housing buildings with complete supporting facilities are the key targets for acquisition. After sorting out the details of the acquisition targets announced by the regions, it is found that existing commercial housing, i.e., houses that have been built but not sold, are the main targets of acquisition. Although some areas also acquire houses under construction, they also require conditions such as "the main body has been topped and can be delivered within one year", "the supplier provides a capital pooling plan for delivery", etc. In the specific acquisition standards, infrastructure, geographical location, transportation convenience, supporting parking spaces, etc. are also considered, and there is a general requirement for clear property rights that can meet the loan conditions of financial institutions.

In terms of acquisition prices, since the transformation into affordable housing model has become the main way for local acquisition, many places have proposed that the acquisition price should be based on the replacement price of affordable housing in the same area. According to the sorting out by Shenwan Hongyuan Securities, in the regional samples that have announced the details of the acquisition, more than 70% of the regions choose the acquisition model of transformation into affordable housing, and their purchase prices are usually based on the replacement price of affordable housing in the same area as the reference limit. Considering that affordable housing is mainly allocated to new citizens or low- and middle-income families for rent or sale, some areas limit the upper limit of the area of the acquired houses, with the upper limit of the area of sale-type affordable housing mostly being 120 square meters, and the upper limit of the area of rental-type affordable housing mostly being 70 square meters. Shenzhen and Hangzhou's Lin'an District focus on acquiring small houses for affordable housing, while low-tier cities like Huizhou have a higher upper limit for the area of acquired houses, mostly 120 square meters.

Financial benefit calculation

According to data from the National Bureau of Statistics, the national residential unsold area in April 2024 is 391 million square meters; according to CRIC data, the narrow inventory of 80 cities in March 2024 is 488 million square meters. According to a simple calculation of 100 square meters per set, the new housing inventory in 80 cities is about 4.88 million sets. According to data from Anjuke, the national second-hand housing listing volume in 100 cities in April 2024 is about 4.75 million sets. The total is 9.63 million sets.

Dongwu Securities estimates that 500 billion yuan in acquisition funds can acquire about 500,000 sets of existing new houses. The core assumption is that the acquisition area: take the average value of 80 square meters; acquisition price: usually 7-8 discounts on the market price, assuming the acquisition unit price is 11,715-13,388 yuan/square meter. According to the above assumptions, the total acquisition price of a single existing house is between 937,000 and 1,071,000 yuan, and 500 billion yuan in acquisition funds can acquire 467,000 to 534,000 sets of existing new houses.The funding for affordable housing projects primarily comes from fiscal funds as capital, with special-purpose bonds and credit funds as supporting funds. Unlike commercial housing construction, the land for affordable housing is usually allocated through a land concession model, with land costs mostly being resettlement compensation expenditures, or significantly lower than the costs associated with the "tender, auction, and listing" model used for commercial housing land. Therefore, considering not to increase local hidden debts and under the principle of "breaking even with a small profit," purchasing commercial housing for rental-type affordable housing may require fiscal interest subsidies or discounted purchases, and for sale-type affordable housing, discounted purchases may be needed.

According to the 2023 rental return rates of 50 cities, only 11 cities have rental return rates higher than 2.5%, and nearly half of the cities have rental yields below 2%. Considering the weighted average interest rate of corporate loans in the first quarter of 2024 is 3.75%, the "rental institution acquisition model" would need central fiscal subsidies for the loans of the purchased projects, or to adopt a localized approach based on the different rental yield levels in various places for discounted purchases of existing housing. For example, the average rental return rate of the 50 cities in 2023 is 2.2%, and if the rental company's acquisition of existing housing projects is to meet the cost of the weighted average interest rate of corporate loans at 3.75%, then the fiscal interest subsidy effort may need to be more than 1.5%, or the existing housing may need to be purchased at a discount of 60%.

Different from the "conversion to affordable housing model" and the "rental institution acquisition model," the "demolition and resettlement model" considers less the returns on the acquisition of existing housing projects, and the scale of acquisition largely depends on the construction situation and land expropriation. Under the "demolition and resettlement model," the resettlement costs for acquiring existing housing are included in land costs and project costs, thus this model does not need to consider the returns on the acquisition of existing housing projects, and the scale of acquisition may depend on local construction project scale and land transfer income. Looking at the direction of local special-purpose bond investments, in addition to the renovation of shantytowns and old residential areas, the construction of industrial parks and transportation infrastructure may also involve demolition and resettlement. From the expenditure structure of local state-owned land transfers in 2015, about 60% was resettlement subsidies for farmers and workers whose land was expropriated, so the situation of land transactions and income may also reflect the local demand for demolition and resettlement to a certain extent.

Therefore, Changjiang Securities believes that the public sector's acquisition of commercial housing inventory for affordable housing mainly faces two constraints: one is the pressure on the operating side (key net rent-to-sale ratio lower than financing costs), and the other is the risk on the asset side (high housing price-to-income ratio or rent ratio). Only when market prices are not higher than fair value can the public sector's acquisition be more efficient.

Following Zhengzhou, it is not ruled out that more cities will provide interest subsidies to the acquisition entities in the future. Against the backdrop of financing costs and rental returns being inverted, interest subsidies can greatly reduce or even eliminate the pressure on operating cash flow, but they cannot effectively alleviate the risk of asset prices. Under the marketization principle, the ability and willingness to acquire are under pressure. The means for acquisition entities to deal with asset price risks are mostly to lower the purchase price, which is also convenient for future exits, but the potential scale of acquisition is relatively limited.

The essence of commercial housing from a residential perspective is a long-term durable consumer good. Inventory will not be digested; it only transfers between departments. From the perspective of the general living space, the total supply and demand relationship of the whole society will not undergo fundamental changes. In this regard, Changjiang Securities suggests that the fundamental solution lies in increasing income and expectations, reducing mortgage interest rates, clarifying the expectations of holding taxes, and strictly controlling the increase in supply, in order to increase per capita consumption, bridge the negative gap between the asset side and the interest rate side, and also requires further cooperation of time and space.