In the traditional sense, October is the peak season for sales of the real estate market, which however, is not the case this year. From September 30, more than 20 cities nationwide have successively announced their new round of regulation measures. Affected by such tightening policies as purchase restrictions and loan restrictions, the real estate market cooled down markedly in October.

As of October 30, housing transactions fell sharply in both first-tier cities and “four-little-dragon” cities. According to insiders, under the continuous action of local intensive regulation policies, the real estate market might experience further adjustments in Q4.

Cooled down – transactions declined significantly in October

Among the new round of regulation policies, Beijing has the strictest policy, with its most obvious effect seen also in October. The Yahao data show that, during the month, Beijing’s housing supply decreased by 64%, and transactions fell by 41%.

As of October 30, a total of 8,508 commercial housing transactions (excluding affordable housing and owner-occupied housing) were concluded in Beijing across the month, covering an area of 943,600 square meters, down by 41% and 32% respectively on a MoM basis; this turnover also created a new low over recent five months. At the same time, the average price of commercial housing transactions in Beijing across the month was 35,449 Yuan/square meter, down by 3% on a MoM basis.

Ren Qixin, Deputy General Manager of Yahao, explained that, the sharp fall of transactions after the introduction of new policy, on one hand, was a result from reduction of effective demand, and on the other hand, was subject to the “short circuit” of supply.

Ren Qixin said, after the introduction of new policy, the market demand began to diverge, as a small part of buyers who previously locked on any interest housing, or those badly in need of housing purchase for special reason, still continued to purchase housing, while a majority of buyers not in urgent need chose to wait and see. Wherein, some people had an improvement-oriented demand of “selling old for new”, but due to difficulty in selling at expected prices, their schedule for buying new housing was forced to postpone.

Not just in Beijing, the date of BACIC5i5j Market Research Institute showed that, after entering October, “four little dragons” (Nanjing, Suzhou, Xiamen and Hefei) that once presented a housing market boom this year saw their commercial housing sales have an overall slump, with an apparent cooling trend.

According to the data, during September, an average of 449 commercial housing units were sold per day in Nanjing, while during October, so far the average daily sale volume was only 207 units, down by 54% on a MoM basis; during September, an average of 463 commercial housing units were sold per day in Suzhou, while during October, so far the average daily sale volume was only 175 units, down by 62.2% on a MoM basis; during September, an average of 22 commercial housing units were sold per day in Xiamen, while during October, so far the average daily sale volume was only 7 units, down by 68.4% on a MoM basis.

The institute stated that, no data about commercial housing sales in Hefei during October had come out yet; however, from the second half of September, the commercial housing sales data in Hefei already began to fall. During the first half of September, an average of 267 commercial housing units were sold per day in Hefei, while during the second half, only 60 units were sold, down by 77.4% on a MoM basis.

Besides, the data of Centaline Real Estate Research Center showed that, as of October 30, a total of 270,164 commercial housing units were contracted since October in 54 cities nationwide, below 30,000 units for the first time over recent three months, down by 15% compared with the data of September.

Zhang Dawei, Chief Analyst of Centaline, said that, after the intensive contract release due to the effect of last bus before purchase restrictions in some cities, the market began to see a transaction decline caused by regulation. In his opinion, online contract data were not enough to reflect the real market situation, “according to surveys of many large intermediary companies and developers, under the impact of new policy, the October transaction volume in first-tier and second-tier cities falls by more than 40% on a MoM basis, which indicates the market is cooling down rapidly.”

Focus – structural regulation policies continued to function

Zhang Dawei said, recently, both CBRC and local levels began to apparently tighten their real estate credit policies. If the credit is completely tightened in the future, the real estate market will bid farewell to the times of prices rising quickly.

As a matter of fact, this round of intensive regulation policies was not only reflected in such respects as purchase restrictions and loan restrictions. Local levels also successively introduced rectification measures toward developers and intermediary agencies, aiming to crack down on illegal behaviors like property hoarding, bidding up property prices, malicious marketing, etc. For example, Beijing intensively carried out law enforcement inspection on for-sale commercial housing projects and real estate intermediary agencies to supervise relevant enterprises to strictly implement real estate regulation policy requirements, and put an end to various behaviors disturbing the real estate market order, such as property hoarding, bidding up property prices, etc.

Besides, in mid October, Shanghai required implementing the loan restriction policy strictly, reinforcing the examination on the source of down payment, and strengthening the income authenticity verification; Shenzhen carried out surprise check over 20 for-sale housing projects in 10 districts/new districts; Guangzhou Housing and Urban-Rural Construction Committee, Guangzhou Land Resources and Planning Commission, Development and Reform Commission, and Industrial and Commercial Administration jointly issued a document to require standardizing practices of real estate development enterprises, and make it clear that severe punishments will be imposed on nine kinds of improper conduct, such as publishing false housing information, malicious hype, property hoarding, etc.

Hu Jinghui, Vice President of BACIC5i5j, told the reporter of Economic Information Daily that, policy implementation was being reinforced step by step, therefore, the decline of commercial housing sales in “four-little-dragon” cities during October was completely understandable.

Guo Yi, Marketing Director of Yahao, stated that, this round of regulation was the strictest and most widespread real estate tightening regulation after 2011. Unlike the “one side fits all” pattern in 2011, this round of regulation laid greater emphasis on policy implementation by city.

Guo Yi said, the current housing performance still diverged significantly across different cities on a national scale, as first-tier and second-tier cities kept overheating, while part of third-tier and fourth-tier cities remained faced with heavier destocking pressure, wherein, among those overheating cities, the “heat” also varied, so this round of intensive real estate regulation could also be called as structural regulation.

Movement – expected further callback in Q4

With regard to the real estate market situation in Q4, Zhang Dawei told the reporter of Economic Information Daily that, taking the Beijing market for example, online contract data were expected to fully reflect the policy result only when reaching November. “It’s predicted that, Beijing’s housing prices will cool down rapidly, the Q4 rise will slow down markedly, and after large supply of owner-occupied housing, prices in some regions might have adjustments.”

He further explained, Beijing’s regulation policy is mainly targeted at middle and high-end markets, and stricter constraints have been taken, which will bring further increased barriers against entry of many luxury real estate projects into the market. Particularly, some high-price land projects will face sharply rising difficulty to obtain a pre-sale license in the future; as a result, the market is likely to enter a cooling period.

“The divergence of demand has caused the sharp decline of transactions after the introduction of new policy, while at later periods, it’s predicted that housing purchasers with a wait-and-see attitude will still continue to increase, and around the Spring Festival, the purchase intention of Beijing’s new housing market will also drop to a staged freezing point.” Ren Qixin said, during New Year’s Day in Q4 and the Spring Festival, which is also a season of slack sales in the traditional sense, a large number of projects will be closed for the winter. Within this period, the shortage of supply will also make transaction prices continue to stabilize. It’s predicted that, this round of supply-side consolidation will be maintained until around next April, by which time, with the entry of a new batch of policy housing products such as owner-occupied housing into the market, and the successive supply of projects with housing prices restricted afterwards, it’s predicted that, the residential market supply will be gradually recovered. At the same time, the housing market’s product form and price system will also see new changes.

As far as the national market is concerned, Guo Yi commented, this round of tightening regulation mainly aims for “de-investing”, so each city has introduced their respective purchase restriction policy of varying degrees according to their own practical situation. The strict purchase restriction policy is good for curbing real estate speculation, and cooling down of overheating property markets in some cities, so that the real estate market can return to the sensible level.

“Besides, this round of sharp rise in housing prices, to a great extent, is a “monetary phenomenon”, while the increased proportion of down payment looks at “de-leveraging.” Guo Yi pointed out that, from the perspective of market performance, the general significant increase of down payment proportion caused a large number of people with original planning for housing purchase to suffer a shortage of capital, so their housing purchase plans had to delay or even shelve, and the wide-range restriction over demand was also an important reason for the universal decline of transactions in October.

“As the end of the year is approaching, commercial banks are generally faced with the lack of credit lines, so by the end of the year, commercial housing transactions in most of cities will enter into a downturn cycle.” Guo Yi believed, affected by the transaction volume, the trend of sharp rise in transaction prices will also be terminated by the end of the year. However, in the long run, the movement of transaction volume/prices, to a great extent, will still be under the impact of monetary policy, and whether total credit lines are included into the range of control will provide a wind indicator for the movement of housing market in the future.