Shantytown renovation is a significant livelihood project. This work began in 2009. Monetary compensation and resettlement for shantytown renovation was proposed in 2014 and gradually started after August 2015. With the deepening of practice, the role of monetization of shed reform in the development of the real estate market has attracted increasing attention from the market. In documents related to real estate regulation, the monetization of shantytown reforms has been mentioned repeatedly. Practice has shown that the monetization of shed reform is an important means of regulating the property market. It is necessary to sort out its mechanism of action in order to better use this tool.
Looking at the monetization effect of shed reform from the perspective of the market evolution process
Looking back at the evolution of the real estate market since 2014, we can see that the turning point occurred in August 2015, which was the positive factor that contributed to the market turning point. It is the monetization of shed reform.
Mild stimulus policies for real estate began in mid-2014, but the market remained weak until August 2015. In the first five months of 2014, real estate transaction volume and transaction value both declined by about 10%. In May, the price of newly built commercial residential buildings in 70 large and medium-sized cities fell by 0.16% month-on-month, which was the first time since June 2012 that the price of new commercial housing fell by 0.16%. fall. As the real estate market declines, various regions have begun to introduce stimulus policies. Many cities have relaxed purchase restrictions and loan restrictions. Hohhot and Haikou have introduced policies to buy houses and settle down. Many cities such as Wuhu, Anhui, have relaxed the conditions for housing provident funds to buy houses.
While local governments are stimulating the real estate market, various ministries and commissions have also introduced a series of policies to stabilize the real estate market. However, these stimulus policies did not revive the real estate market. In particular, housing prices in third- and fourth-tier cities were still declining from the second half of 2014 to 2015.
In August 2015, the Ministry of Housing and Urban-Rural Development and the Development Bank jointly issued the "Notice on Further Promoting Monetary Resettlement of Shant Renovation", requiring the proportion of monetized resettlement to be no less than 50%. This policy had a huge promotion effect on this round of real estate market conditions, and subsequently the real estate market ushered in a round of nationwide general rising prices.
The original intention of proposing the monetization of shed reform is to destock real estate. In view of the fact that real estate prices began to decline around 2014, destocking became the policy direction of the real estate market. In order to alleviate the contradiction between supply and demand in the market, some people began to propose monetary compensation for shanty town renovation instead of physical resettlement. This move can not only stimulate housing demand, and improve the flexibility of home purchase choices for compensated persons.
The shantytown reconstruction plans in 2016 and 2017 are both 6 million units. If half of them are monetized, it means that there will be an additional housing demand of 3 million units, which will have a marginal impact on the real estate market. is huge. In recent years, the sales volume of new houses has been approximately 15 million units per year, and the new demand caused by the monetization of shed reform is equivalent to 1/5 of this. In some third- and fourth-tier cities, monetization of housing reform accounts for more than half of the housing demand. Considering that some residents who received monetary compensation increased their leverage operations, the actual stimulus effect is even greater.
Another important effect of the monetization of shed reform is to change the monetary transmission mechanism. The main source of funds for housing reform is the central bank's PSL (Mortgage Supplementary Loan), which is then provided to local governments by the China Development Bank, and local governments use these funds to carry out housing reform. It can be seen that the monetization and resettlement of shanty town reconstruction is not only an innovation in the housing system, but also an innovation in the injection of basic currency. It is also an innovation in the monetary transmission mechanism. It is equivalent to setting up a special link between the central bank and the real estate market in small and medium-sized cities. Money injection channels have had a profound impact on the real estate market in third- and fourth-tier cities.
According to the past monetary transmission mechanism, when credit and money expand, the real estate market in first-tier cities is the first to be stimulated. The third- and fourth-tier cities are significantly less affected by expansionary monetary policies than first-tier cities. Therefore, When housing prices in third- and fourth-tier cities begin to rise, it is often a signal that the market is over. The monetization mechanism of shed reform broke the previous rules of monetary transmission and had the effect of targeted easing of monetary policy. This is the fundamental reason why in this real estate cycle, price increases in third- and fourth-tier cities last longer than in previous cycles.
Be cautious in using policy tools for the monetization of shed reform
The author believes that any policy tool with strong influence must be used with caution, otherwise it is easy to overcorrect.
Monetization of shed reform is a powerful policy tool, and this tool must be used with caution.
The monetized resettlement of shantytown reconstruction projects has greatly improved residents’ housing purchasing power and improved the living standards of ordinary residents, but the financial risks involved cannot be ignored. From a financial perspective, the monetization of shantytown reform gives residents with low payment ability the opportunity to obtain mortgage loans. Many residents’ mortgage down payments come from the monetized resettlement of shantytown reform. Because of this, residents’ mortgage loans have increased rapidly. Before 2015, mortgage loans accounted for about 20% of all new loans. However, since the implementation of the monetization policy of shantytown reform, the proportion of mortgage loans in all new loans has increased rapidly. Improvement. In some months of 2016, mortgage loans accounted for more than 80% of new loans. Against the background of strict control over mortgage loans, resident loans still accounted for 53% of new loans in 2017 (mainly mortgage loans) , exceeding corporate loans, which is the main reason why personal debt leverage has increased rapidly in recent years.
Against the backdrop of a year-on-year decline in the growth rate of per capita disposable income, the rapid increase in residents’ financial leverage has overdrafted future demand. The income levels of residents in third- and fourth-tier cities are low, and financial risks have emerged as a result of monetizing shantytown reforms to stimulate demand. Many of the home buyers in these cities are rural residents and employees of industrial and mining enterprises. Their income levels are low and unstable, and there is some uncertainty about their ability to repay loans.
The side effect is that the advancement and retreat of this policy tool will cause market fluctuations. In short, the monetization of shed reform is an important policy tool, and how to use this tool correctly needs to be further deepened.
(Source of article: China Securities Journal)