Industry Thoughtware

The Report

“2018 China Real Estate Market Review" was prepared by Deloitte Research team. The report focuses on the development of China real estate industry in 2018, the external environmental analysis and industry development trend review. In the context of “House are for living in, not for speculation”, this report analyses the impact of government control measures and Sino-US trade friction on the real estate industry. It provides a reference for industry practitioners and corporate strategic investors.

Viewpoints / key findings

Analysis on external factors

The China real estate market is entering a new round of adjustment. The government has continuously introduced macro control policies on property market and strengthened supervision over real estate development loans, aiming to curb leverage and real estate bubbles and promote the positive development of the industry. With this round of adjustment, the China real estate market will continue to transform and upgrade.

According to 2018 Foreign Trade statistics, the negative impact of Sino-US trade disputes on China's economy has not yet fully reflected, but it is undoubtedly the biggest external risk affecting the global and Chinese economy in 2019. Coupled with further tightening policy of real estate financing in 2018, small and medium-sized property developers will be further restricted in credit and standardized bond financing, and non-standard financing will further shrink. In 2018, the number of real estate control policies introduced throughout the country reached 405 times, an increase of about 80% over the same period in 2017, mainly concentrated in second-and third-tier cities.

Current market development

Due to the continued tightening policies in different cities, the market has gradually changed in the past two years, and the sales and price have dropped obviously. In particular, the first-tier cities have ended the robust increase, with slightly change or stay flat on MoM and YoY growth. In 2018, the sales prices of residential house in first-tier cities tends to be stable, second-tier cities declined, and the upward momentum of third-tier cities was suppressed.

Property developers seek transformation and plan for rental housing market. Under the background of "Houses are for living in, not for speculation", rental housing has been encouraged by central government, and property developers are planning to "go rental". Large real estate developers have been engaged in home leasing projects: Vanke, Country Garden, Evergrande and other companies are actively exploring the potential of rental housing and considered this a strategic development in 2018 and going forward. By the end of 2018, more than 50 property developers were planning long-term rental apartment projects.

New industry outlook.

Required by the local government, and demand for upgrading the land use for development needs, property developers have rapidly transitioned to develop large-scale multi-function complex with commercial, tourism, and industrial building, this will become a new market niche. The asset securitization products such as REITs has accelerated. As the return on property assets continues to decline, large property developers had speed up their transition to light asset operations. Innovative financing methods such as asset securitization have become the inherent needs of new property development.

Summary and outlook

As the country's destocking pressure is gradually reduced, the trend of cooling the property market in the first and second-tier cities is obvious, which means that the regulatory policy will be based on “stability”. The Ministry of Housing and Urban-Rural Development's key tasks in 2019 are still aimed at stabilizing land prices, house prices, and expectations. They insisted on the positioning of “Houses are for living in, not for speculation", and the real estate market supervision is stable but not loose.