The Observer｜“It’s not that developers have built many houses and haven’t sold them, but that they’ve sold many houses and haven’t finished building them”

The acquisition of existing housing plays an important role in stabilizing the property market, but judging from the overall progress of acquisitions in various regions in 2024, the speed is still slow. What is the reason?

Recently, Lu Ting, chief economist of Nomura Securities China, said in a dialogue on the Observer.com’s “Economists’ Suggestions for China’s Economy in 2025” that acquisitions are not easy, and there are some very important and special institutional backgrounds behind this issue.

Lu Ting said: “Many people think that the real estate market is like the various markets we usually see. If supply exceeds demand, it must be that developers have built a lot of houses that have not been sold. In fact, this is not the case. The real estate market is more like a forward market because we have a pre-sale system.”

Lu Ting pointed out that before this round of real estate contraction, 90% of new houses were pre-sold, “which means I give you money, and you give me the house after two or three years, and this involves financing.”

“This market is not a one-hand payment and one-hand delivery, which leads to a problem. We are not actually that supply far exceeds demand, but that the demand is already there. I have already bought the house, and I have also given you the money, but the house has not been completed on schedule and with quality,” Lu Ting said.

“Then let’s look at the issue of acquisitions and find out if there are really so many completed houses available for acquisition? In fact, there are not,” Lu Ting pointed out. “Now there is a very key issue, it is not that developers have built a lot of houses that have not been sold, but that developers have sold a lot of houses that have not been completed.”

In May last year, the People’s Bank of China announced the establishment of a 300 billion yuan affordable housing relending to support local acquisitions. Lu Ting said, “At that time, I predicted that this acquisition fund would be difficult to use. Why? Because the central bank has set very high standards for local government acquisitions, requiring completed houses, but there are relatively few completed houses. For local governments, for the convenience of management, they want to acquire houses in whole buildings, and this proportion is even smaller.”

“Do developers have houses that have been completed but not sold? Yes, but generally they are the remaining units, and they are scattered in different buildings, which makes the acquisition more difficult,” Lu Ting pointed out. The funds themselves also have costs, and local governments do face the problem of fund costs and fund amounts. Therefore, acquisitions are not easy.

“Some people also say that if it is not easy to acquire completed houses, then acquire houses that have not been completed. There are two types of houses that have not been completed, one is those that have been sold, which is where the problem of ensuring delivery of houses comes from. The other is those that have not been completed. If we acquire houses that have not been completed, it is better to face the problem of ensuring delivery of houses directly,” Lu Ting said.

The “Economists’ Suggestions for China’s Economy in 2025” series is a heavyweight series of dialogue programs launched by Observer.com before the National “Two Sessions”. Focusing on public concerns in many areas such as expanding domestic demand, boosting consumption, foreign trade and foreign investment, the stock market and the property market, new quality productive forces, rural revitalization, and high-quality development, it invites several well-known economists to look ahead and offer suggestions for China’s economy in 2025. Please pay attention.