Introduction to the report / core points
The fund arrangement of urban renewal is mainly based on the management mode of urban implementation, and there is no unified arrangement at the national level. From the local documents, the government mainly plays a guiding role, and the market subject is the main investment operation subject; In terms of capital, market financing such as bank loans is the main channel; Financial funds are a supplement to market financing, and central and local financial funds and special bonds can participate in urban renewal; In addition, preferential measures for tax reduction and fee reduction can also be provided for urban renewal projects. It is estimated that the investment scale of urban renewal during the 14th Five Year Plan period will be more than 10-12 trillion yuan, and the average annual investment scale during the period will be more than 2-2.5 trillion yuan. Considering the strong demand for steady growth in 2022, there may be the characteristics of pre force in the 14th five year plan; According to the estimation of 70% and 30% of real estate and infrastructure investment respectively, the contribution to the growth rate of real estate investment in the whole year is about 7% – 8%. We expect that the real estate investment in 2022 will exceed the expectation and maintain the annual growth rate of real estate investment of 5.4%. The short-term equity assets are expected to grow steadily, and the performance of relevant sectors will continue; In terms of interest rate bonds, it is expected that the yield of 10-year Treasury bonds will further rise to 2.9% in Q2.
It is estimated that urban renewal will contribute 7% – 8% to the growth rate of real estate investment and maintain the annual growth rate of real estate investment of 5.4%. It is estimated that the investment scale of urban renewal during the 14th Five Year Plan period will be more than 10-12 trillion, and the average annual investment scale during the period will be more than 2-2.5 trillion. Considering the strong demand for steady growth in 2022, there may be the characteristics of pre force in the 14th five year plan; If the investment in real estate and infrastructure accounts for 70% and 30%, the contribution of urban renewal to the growth rate of real estate investment in the whole year is expected to be about 7% – 8% (according to the estimation of the current sample cities, the proportion of real estate investment in urban renewal is about 60%. With the further promotion to the third and fourth tier cities in the future, the proportion may further increase to 70%. Please refer to the previous report “how much real estate investment can urban renewal drive?”. As a strong variable of real estate investment in 2022, this paper further studies the source of funds for urban renewal.
The fund arrangement of urban renewal is mainly based on the management mode of urban implementation, and there is no unified arrangement at the national level. In terms of fund-raising, there are few provisions on the national consistency of urban renewal, mainly based on local urban implementation. The important management documents of urban renewal at the national level mainly include the key tasks of new urbanization and urban-rural integration development in 2022, the notice on preventing large-scale demolition and construction in the implementation of urban renewal, etc. the above documents do not make a national unified arrangement for the financing method of urban renewal funds. We believe that the current capital arrangement for urban renewal is mainly based on the implementation of policies by all regions according to the city, and there is no unified constraint at the national level. The regulations or methods for urban renewal management at the local level raise funds in principle according to the actual conditions of all regions.
According to the local documents, the government’s guidance of market operation is the main way, and market financing such as bank loans is the main channel. According to the local urban renewal management regulations (or methods), they basically adhere to the principle of “government promotion and market operation”, and market-oriented financing such as corresponding bank loans will also be an important financing channel for urban renewal, In addition to commercial banks, policy financial institutions such as China Development Bank can also actively respond and participate. We believe that urban renewal is also an important starting point for wide credit, which has played an important role in exceeding expectations of Q1 financial credit data in 2022.
Shanghai encourages market-oriented financing and urban renewal through multi-channel financing through the capital market. The regulations of Shanghai Municipality on Urban Renewal (Draft) requires at the level of management principles: “follow the guidance of planning, promote in pieces, promote by the government and market operation”, and at the level of specific implementation: “the municipal and District People’s governments shall organize the selection in accordance with the principles of openness, fairness and justice, and determine the market subjects suitable for urban renewal activities within the region as the subjects of renewal planning.”; At the level of capital arrangement for market entities, it is required to “encourage financial institutions to carry out diversified financial products and service innovation according to law to meet the financing needs of urban renewal. Support qualified enterprises to carry out financing activities in multi-level capital market and give full play to the role of Finance in promoting urban renewal.”
Chongqing encourages market-oriented financing, with the participation of national policy banks and commercial banks. The Chongqing urban renewal work plan requires “government guidance and market operation” at the management level, The capital guarantee clause states: “adhere to the leading role of the market, fully mobilize the enthusiasm of enterprises and residents, encourage the participation of national policy banks and commercial banks, and widely pool social forces to participate in urban renewal and reconstruction projects; Tianjin encourages market-oriented financing, and CDB takes the lead in coordinating the syndicate to provide key support.” notice on the implementation plan for the transformation and upgrading of old houses and old communities and urban renewal in Tianjin ” At the management level, it emphasizes “planning guidance and government leadership”, at the operation level, “market operation and enterprise implementation”, at the financing level, for urban renewal projects, it is necessary to “raise funds through multiple channels and raise project capital from multiple sources”. In terms of financial support, “financial institutions such as Tianjin Branch of China Development Bank act as the general coordinator of financial services and the general lead bank of syndicates, in accordance with the principles of marketization and rule of law, Provide financial support for Tianjin urban renewal projects in accordance with laws and regulations.
In addition to the above market-oriented financing means, the urban renewal funds currently established in various regions can also play a role in guiding investment. According to our estimation of the total amount of urban renewal funds, it has exceeded 200 billion yuan.
Financial funds are a supplement to market financing. Central and local financial funds and special bonds can participate in urban renewal. In addition to market-oriented financing arrangement, financial funds will also support urban renewal projects, mainly through two channels:
First, the central policy funds, local land transfer income and special debts participate in the construction of urban renewal projects; Second, the local government will provide tax reduction and fee reduction and other project support.
Chongqing advocates the joint development of central funds, special bonds, municipal finance and PPP in the field of financial support. In addition to emphasizing market-oriented financing in terms of fund guarantee, the Chongqing urban renewal work plan also puts forward two channels of financial development: first, actively borrow the central policy funds and special bonds, and put forward that “make full use of the central government’s special funds for urban affordable housing projects and other policy funds, and explore the use of more national policy loans for urban renewal projects through special bonds”; Second, the municipal financial funds provide support, proposing to “increase the municipal financial support for the pilot projects, promote the implementation of the pilot projects and give play to the demonstration effect”. In addition, PPP, a mode of cooperation and co construction between government and enterprises, is also the direction encouraged by Chongqing. In the scheme, it is proposed to “encourage the use of government and social capital cooperative project construction mode (PPP) to promote the implementation of urban renewal projects. Enterprises are encouraged to participate in the renewal and transformation through direct investment, indirect investment, entrusted construction and other means”
For urban renewal projects involving infrastructure, Shenzhen arranges to allocate funds from the land transfer fee, and the local finance will provide operational funding support for the project. The measures of Shenzhen Municipality on urban renewal first proposes that “the municipal development and reform department shall be responsible for formulating industrial guidance policies related to urban renewal and making overall arrangements for the annual funds for urban renewal involving government investment”, in which “if it involves the construction of infrastructure and public service facilities, the corresponding project funds shall be arranged from the land transfer fee.
Second, the municipal and district governments shall guarantee the funds for organizing and implementing urban renewal and provide appropriate financial support for urban renewal projects.
The arrangement of financial funds in Shanghai is similar to that in Chongqing, which also encourages the participation of special bonds, and the financial funds give some project cost support. The first is to “encourage the raising of reconstruction funds through the issuance of local government bonds and other means” Second, “the municipal and District People’s governments shall arrange funds to support the transformation of old districts, the renewal of old houses, the transformation of ‘villages in cities’ and other urban renewal projects involving public interests.”
In addition to traditional financing channels, Tianjin explores the use of state-owned assets to inject into urban renewal projects, and gives support for tax reduction and fee reduction. The notice on the implementation plan for the transformation and upgrading of old houses and old communities and urban renewal in Tianjin first puts forward “to study the support measures such as state-owned asset injection included in the scope of renewal”; The second is to emphasize “giving administrative fee reduction and exemption and tax preference to urban renewal projects in accordance with laws and regulations.”
According to the classification of “three old and one village” projects, Beijing encourages different financing modes, which is of great reference significance to the whole country. On the whole, the current urban renewal adopts the financing mode of “market financing + financial funds”. In addition, we believe that the mode of “implementing policies according to projects” adopted by Beijing also has reference significance. It encourages different financing modes for the classification of “three old and one village” in urban renewal, which may be further popularized throughout the country in the future. In the guiding opinions of the Beijing Municipal People’s Government on the implementation of urban renewal action, first, the local finance actively participates in the transformation of old residential areas. The document puts forward that “the municipal finance will support the renewal projects such as the transformation of old residential areas, the reconstruction of dangerous old buildings, the application for rent refund and repair of bungalows (courtyards) in the functional core area of the capital in accordance with relevant policies”; Second, the municipal government partially participated in the old factory buildings, and the document proposed that “the municipal government’s fixed asset investment can be supported in accordance with the corresponding proportion for the qualified renewal projects such as the municipal pipeline transformation of the old community and the transformation of the old factory buildings”; Third, other items not listed, such as urban villages and other projects, encourage market entities to actively participate. The document puts forward that “market entities are encouraged to invest funds to participate in urban renewal; real estate property owners are encouraged to raise funds for renewal and transformation; financial institutions are encouraged to innovate financial products and support urban renewal.”
Risk warning: the sample of urban renewal enterprises in some cities has deviation from that in the whole country; Investment in urban renewal is less than expected.
