CHINA Trends and Developments Contributed by: Lingyue Sun, Xiang Mao and Yi Wu, Merits & Tree Law Offices
Combination of Policies Concerning Supply While optimising demand-related policies, the central and local governments were also work - ing on improving the environment for supply. On one hand, the traditional mode of real estate development is changing. From a regulatory per - spective, the central government has repeatedly emphasised the construction of “three major projects” in 2023, which include: • the construction of affordable housing; • the renovation of urban villages; and • the construction of “dual-use” public infra - structures. Among the above three projects, the construc - tion of affordable housing may provide the mid - dle- and low-income class with appropriate liv - ing conditions; the renovation of urban villages can improve the environment and enhance the overall appearance of the city; and the “dual- use” public infrastructure may be used for medi - cal treatment, tourism and public services, etc, while in emergencies, it can be immediately con - verted into emergency facilities. It seems that the said policy is adjusting the old business mode of “land acquisition-develop - ment-sales” from the past. Nevertheless, since the three projects are complicated and system - atic, it may need quite a long time to come to fruition. On the other hand, the government is looking for ways to resolve the risks of real estate devel- opers. At the end of October 2023, the Central Financial Work Conference stressed that “the reasonable financing needs of real estate enter - prises of different ownership should be met equally”. Under this policy, the central bank as
apply to the bank for a new loan at a lower inter - est rate to replace the existing loan or directly reduce the interest rate by amending the loan contract through negotiation with the bank. In addition, on 20 February 2024, the People’s Bank of China announced they would further lower the Loan Market Prime Rate (LPR). The LPR for a term of five years or more dropped significantly by 25 basis points to 3.95%, mak - ing the loan rate close to record lows. The issuance of the aforesaid regulations is just an example of the various initiatives to stimulate the demand and increase the buyer’s willingness to purchase. Under the new policies, buyers are offered less total cost and lower monthly pay - ments thanks to the favourable interest rate. On the other hand, as more people are able to meet the requirements to purchase a residential property, the potential buyer market is hopefully expanding. In addition to the national policies, local gov - ernments have also issued relevant policies and regulations. Since September and October, many cities have announced the cancellation of purchase restrictions, no longer setting qualifi - cations for residential buyers. By January 2024, 20 core cities including Nanjing, Hefei, Jinan, Qingdao, Wuhan, Wuxi, Ningbo had completely cancelled the purchase restrictions for urban residences. These new policies will lead to the further expansion of the buyer’s market. Overall, it is hoped that the policies will boost the real estate market and increase the transaction volume in the short term, but the long-term effect still needs to be observed, taking into account the changes in the market supply and demand as well as the sustainability of the policies.
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