In 2021, China’s real estate market experienced a transformation from high fever in the first half of the year to deep adjustment in the second half of the year, and the scale of the whole year remained at a high level. Since the end of September, the central government and various ministries and commissions have continuously released signals to maintain stability. The marginal improvement of the credit environment and the financing environment of real estate enterprises have gradually improved. However, it still takes time for the marginal improvement of the credit environment to be transmitted to the market, and it still takes time for funds such as mortgage loans and development loans to be in place. In 2022, China’s economy is facing new downward pressure. How will the real estate market change and whether the home buyers’ sentiment can be restored?
Part I: summary of China’s real estate market in 2021
(i) Price level: the annual cumulative prices of new houses and second-hand houses in Baicheng increased slightly, and the prices fell continuously from November to December
In terms of new houses, the price of new houses in 100 cities increased by 2.44% in 2021, the lowest level in recent seven years. Among them, the market performance was stable and good in the first half of the year. Since the second half of the year, the market has continued to cool down and the cumulative increase has narrowed significantly. According to the 100 city price index of China’s real estate index system, the price of new houses in 100 cities increased by 2.44% in 2021, the lowest level in recent seven years, 1.02 percentage points lower than that in 2020. In the first half of the year, the new housing market steadily improved, and the price of new houses in 100 cities increased by 1.70%, 0.43 percentage points higher than the same period in 2020; Since the second half of the year, with the continuous tightening of regulatory policies and credit environment, market expectations have gradually changed, the new housing market in Baicheng has been cooling, the month on month price increase has been narrowed, and it has fallen continuously in November and December. In the second half of the year, the price of new houses in 100 cities increased by 0.73%, narrowed by 0.97 percentage points compared with the first half of the year and 1.43 percentage points compared with the same period in 2020. In December alone, the average price of new houses in Baicheng was 16180 yuan / m2, down 0.02% month on month.
In terms of the number of rising and falling cities, since June 2021, the price of new houses in 100 cities has decreased month on month, and the number of cities has shown an upward trend. By December, there were 58 cities in which the price has decreased month on month, an increase of 5 compared with November, the highest in the year.
In terms of echelons, the increase of new house prices in each echelon city has shown a downward trend since the second half of the year. In 2021, the price of newly-built houses in first tier cities increased by 2.43% and narrowed by 1.50 percentage points compared with that in 2020. Since the second half of the year, the month on month increase has declined rapidly, from up to down in November and continued to decline in December; Prices in second tier cities rose by 2.52% in total, 1.15 percentage points lower than that in 2020, including a month on month increase of 0.03% in December, at a low level in the year; The third and fourth tier cities’ prices rose by 2.31% in total, 0.18 percentage points lower than that in 2020. Since June, the month on month increase of new house prices in the third and fourth tier cities has gradually narrowed, and turned down in December.
In terms of second-hand housing prices in Baicheng, the market heat has dropped significantly since the second half of the year, the month on month increase in prices has narrowed rapidly, and the month on month decline has been continuous since the fourth quarter. According to the 100 city price index of China’s real estate index system, the price of second-hand houses in 100 cities increased by 3.27% in 2021. Specifically, in the first half of the year, the price of second-hand houses in 100 cities increased by 2.56%; Since the second half of the year, the second-hand housing market has cooled rapidly, and the month on month increase of second-hand housing prices in Baicheng has continued to narrow. In the second half of the year, the price of second-hand houses in Baicheng increased by 0.70%, narrowed by 1.86 percentage points compared with the first half of the year. In December alone, the average price of second-hand houses in Baicheng was 15999 yuan / m2, down 0.08% month on month, falling for three consecutive months, and the decline continued to expand; In addition, since the second half of the year, the number of cities with month on month decline in second-hand housing prices in 100 cities has also increased month by month, reaching 71 in December, an increase of 3 compared with November.
Overall, in the first half of 2021, the price increase of new houses in Baicheng expanded compared with the same period in 2020, and the price increase of second-hand houses also ranked high in the year. Since the second half of the year, affected by the tightening of regulatory policies and credit environment, the new housing and second-hand housing market has cooled down; Some cities are affected by the superposition of the policy of “second-hand housing transaction reference price”, and the cooling of the second-hand housing market is more obvious. Although the marginal easing signal of credit policy has been continuously released and the marginal adjustment expectation of regulation policy has been continuously strengthened since October, the market downward expectation is still difficult to change in the short term. In December, the market price still showed a downward trend. The price of new houses in Baicheng fell for two consecutive months and the price of second-hand houses fell for three consecutive months.
（2） Transaction scale: the transaction volume is “high in the front and low in the back”, the market activity dropped sharply in the second half of the year, and the annual sales scale of key cities increased slightly year-on-year
According to the data of the Bureau of statistics, from January to November 2021, the sales area of commercial housing in China has reached 1.58 billion square meters, and the sales volume has reached 16.2 trillion yuan, with a year-on-year growth rate of 4.8% and 8.5% respectively. In November, the national market maintained a low temperature operation, and the sales area and sales volume of commercial housing in China decreased by 14.0% and 16.3% respectively, maintaining a double-digit decline for four consecutive months. However, due to the marginal improvement of the credit environment and other factors, the year-on-year decline narrowed by 7.7 and 6.3 percentage points respectively.
In 2021, the transaction area of newly-built commercial houses in key 50 cities increased slightly year-on-year, and the absolute scale was second only to the same period in 2016. However, the market cooled significantly in the second half of the year, and the transaction scale in the second half of the year fell to the lowest level in the same period since 2015. According to preliminary statistics, in 2021, the average monthly transaction area of newly-built commercial houses in 50 representative cities was about 33.24 million square meters, a year-on-year increase of 4.6%, of which the year-on-year decrease in the second half of the year was more than 20%. Specifically, in the first half of the year, the real estate enterprises actively pushed the market to collect the payment, and the demand of the first tier and hot second tier cities was first released. Then the market heat of the hot areas was transmitted to the surrounding third and fourth tier cities, and the overall market scale increased significantly. The average monthly transaction area of commercial housing in key 50 cities increased by 45.0% over the same period;
In the third quarter, local regulatory policies continued to increase, the credit line for house purchase was tight, the lending time was extended, the policy effect was obvious, the market activity fell, and the overall transaction scale was the lowest level in the same period in recent four years, with a year-on-year decrease of nearly 20%;
In the fourth quarter, the market continued to operate at a low temperature, and the transaction area of key cities decreased by more than 20% year-on-year (it has decreased by more than 20% for five consecutive months). Although the real estate credit environment is expected to improve, the sentiment of home buyers has not improved significantly. Real estate enterprises have increased project marketing under great capital pressure and annual performance objectives, but the overall effect is not obvious.
In terms of echelons, in 2021, the transaction area of new commercial housing in first tier and second tier representative cities increased year-on-year, while that in third tier representative cities decreased year-on-year. According to preliminary statistics, first tier cities increased by 18.0%, second tier representative cities increased by 5.8% and third tier representative cities decreased by 2.0% year-on-year. In the first half of the year, transactions in representative cities of all lines were active, and the sales area increased year-on-year. Among them, the first tier cities increased the supply of new houses. Driven by strong demand, the market transaction scale increased significantly, with a year-on-year increase of more than 80%; Second tier and third tier representative cities grew by more than 40% year-on-year; In the second half of the year, the market cooled significantly, and the transaction area of new commercial houses in each line of representative cities decreased, of which the third line of representative cities decreased by more than 30% year-on-year, with the largest decrease.
From a subregional perspective, the year-on-year growth rate of the Yangtze River Delta and the Pearl River Delta has dropped since the second half of the year, and the representative cities in the Pearl River Delta have cooled significantly. According to the monitoring data of the China Index, in 2021, the transaction area of commercial housing in representative cities in the Pearl River Delta decreased by 17.2% year-on-year. Except that the transaction scale in Guangzhou and Shenzhen still increased year-on-year, the transaction area in other representative cities decreased year-on-year, among which Huizhou and Dongguan decreased the most year-on-year. In the second half of the year, the representative cities in the Pearl River Delta decreased by more than 40% year-on-year.
（3） Demand structure: 90-120m2 house types are still the mainstream of the market, and most represent a decline in the proportion of 120-200m2 in cities
Based on the total price and trading volume, we divide the buildings at different levels in 30 cities into three categories: medium and low price, medium and high price and high price. The specific division method is as follows: first, all new buildings are arranged in descending order according to the total price. The top 10% of the trading volume belongs to high price buildings, 10% ~ 40% belong to medium and high price buildings, and the last 60% belong to medium and low price buildings.
Most representative cities have a hot market in the first half of the year. After the superposition of high-priced projects in the early stage, the sales price of newly opened projects is higher, the house price increase is higher, and the average value, median value and threshold value of each price are higher than those in 2020. However, the market differentiation in different cities has further intensified. Affected by factors such as the increase of suburban projects and the proportion of small and medium-sized households, the total price of real estate units in Shanghai, Xiamen and other cities has dropped, while the total price of real estate units in Ningbo, Shaoxing and Foshan still maintains a high growth rate, and the average value, median, medium and high price and high price threshold of total price have increased by about 10% compared with 2020.
In terms of the proportion of the number of units traded in the area section, the products of 90-120 square meters still occupy the mainstream position in the market, and the demand of the first tier and some hot cities in the Yangtze River Delta has been actively released; However, it is worth noting that the high rise of house prices, the limited amount of bank mortgage and the change of supply structure have restrained the improvement demand of medium and high-end in hot cities. The proportion of 120-144 and 144-200 square meters in most of the 30 representative cities is lower than that in 2020.
