Heat up the real estate market?, Advantages of Urban Village Renovation | Model | Urban Village
The importance of urban village renovation has once again increased.
The State Council executive meeting held on the 21st reviewed and approved the Guiding Opinions on Actively and Steadily Promoting the Renovation of Urban Villages in Super Large Cities. The meeting pointed out that urban people's governments should take the main responsibility, strengthen organization and implementation, scientifically formulate renovation plans, raise renovation funds through multiple channels, efficiently and comprehensively utilize land resources, coordinate and handle various interests and demands, and combine urban village renovation with the construction of affordable housing. We should fully leverage the decisive role of the market in resource allocation, better leverage the role of the government, increase policy support for the transformation of urban villages, actively innovate transformation models, encourage and support the participation of private capital, and strive to develop various new business models to achieve sustainable operation.
Since the beginning of this year, the central high-level meeting has repeatedly mentioned the issue of urban village renovation. The Central Political Bureau meeting held on April 28th this year proposed to actively and steadily promote the transformation of urban villages and the construction of public infrastructure for both emergency and emergency use in mega cities.
The seventh national population census data shows that China has 7 mega cities and 14 mega cities. The reporter found that as of early July, cities such as Guangzhou, Shenzhen, Hangzhou, and Qingdao have successively issued detailed requirements or supportive policies for the transformation of urban villages this year.
Li Yujia, Chief Researcher of Guangdong Housing Policy Research Center, believes that the renovation of urban villages is an inevitable choice for restoring domestic demand and consumption potential; On the other hand, it is also an inevitable choice to guide and release domestic demand. For real estate, the transformation of urban villages can build a new consumption pattern and model of renting before buying, and gradually enable new citizens, young people, and migrant populations to upgrade their housing consumption, thereby creating conditions for the sustainable development of the commodity housing market.
Although the renovation of urban villages is considered an important measure to improve people's livelihoods, expand domestic demand, and promote high-quality urban development, in the eyes of industry insiders, due to the fact that the old renovation in the new era has departed from the model of large-scale demolition and construction, and the current enthusiasm for private investment still needs to be restored, the renovation of urban villages needs to be led by local functional state-owned enterprises and create more favorable conditions for market funds to enter.
"But currently, the sentiment of the private economy is still recovering, and it is difficult to attract a large amount of social capital in the short term. Currently, it is more likely that state-owned enterprises will take the lead in exploring some feasible pilot plans, forming a demonstration effect, and then gradually increasing the market proportion." said Li Yujia.
How to renovate urban villages?
Urban village renovation, shantytown renovation, and old renovation are important means of urban renewal. Among them, the updated objects of "urban village renovation" are villages that have gradually been incorporated into the urban management system or surrounded by cities in the process of urbanization.
Wang Yeqiang, Director of the Real Estate Committee of the China Urban Economics Society, told First Financial that as a historical legacy in rapid urbanization, the transformation of urban villages has explored various models in various regions, such as the Guangzhou model, Shenzhen model, Zhuhai model, Hangzhou model, Zhengzhou model, etc. Each model has its own differences in terms of transformation subjects, demolition compensation methods, types of renovated houses, land ownership changes, and management systems.
Wang Yeqiang gave an example that in terms of the transformation subject, it can be divided into three types: government led, such as Hangzhou; Developer led, such as Zhuhai; Village collectives are dominant, such as in Guangzhou. In terms of renovation methods, various regions choose methods including thorough reconstruction, partial reconstruction, and comprehensive renovation based on urban planning, functional positioning, and economic strength. According to the compensation methods, it can be divided into two categories; There are two types of compensation: one is a combination of physical compensation and monetary compensation, such as in Zhengzhou; the other is government renovation, which directly compensates for a certain area of housing based on the market valuation of the original housing area, such as in Hangzhou.
According to the notice issued by the Ministry of Housing and Urban Rural Development in August 2021 on preventing large-scale demolition and construction in the implementation of urban renewal actions, it is necessary to demolish urban villages and other contiguous old areas in a timely and large-scale manner to prevent the imbalance between supply and demand in the housing rental market and exacerbate the rental difficulties for new citizens and low-income disadvantaged groups; Simultaneously carry out the construction of affordable rental housing, coordinate and solve the rental housing problems of key groups such as new citizens and low-income disadvantaged groups, and ensure that the annual increase in urban housing rent does not exceed 5%.
However, even so, the idea of local governments raising affordable housing through large-scale and high-quality renovations in urban villages may conflict with the ideas of indigenous people and tenants.
Cui Guangcan, a professor at the School of Business at Shanghai Normal University and director of the Real Estate and Urban Development Research Center, told reporters that whether the urban village renovation can be successfully implemented depends on factors such as funding sources and residents' willingness. For a long time, due to the inconsistent wishes of residents, difficulties in planning adjustments, and large funding balance gaps, the renovation of urban villages has often been difficult to implement or there is a possibility of unfinished projects; Only when the residents have strong willingness, the renovation plan is feasible, the renovation subject is implemented, and the funding balance is basically achieved through government subsidies, personal investment, and supporting income increase, can urban village projects have the basic conditions for smooth implementation.
"Due to large investment and limited profit margins, the renovation of urban villages used to be mainly focused on functional state-owned enterprises. In the future, by innovating special financial products, implementing greater tax incentives, and allowing for greater planning adjustments, more social capital can be attracted to intervene and accelerate the pace of urban village renovation," said Cui Guangcan.
Li Yujia stated that due to the emphasis on public welfare in the renovation of urban villages, the main goal is to address the serious lack of public shortcomings, increase affordable rental housing, and retain "low-cost, location-based" rental and living spaces. Therefore, in the future, the developer led model is not suitable, and it is more likely to maintain the model led by local functional state-owned enterprises to ensure the public nature of the renovation. In addition to leading state-owned enterprises, the entry of various social funds should mainly focus on operating income such as leasing income, rather than real estate sales income, to avoid excessive real estate development.
At the level of primary development, in order to further improve the efficiency of urban village renovation, Guangzhou proposed in the "Measures to Support Coordinated Land Development and Promote High Quality Development" issued in March this year that old renovation projects will no longer implement the development model of one enterprise's primary and secondary linkage, and will instead adopt a scheme of separating land use and land storage, with wholly-owned state-owned enterprises as the main land use entities. The land subject shall raise funds and cooperate with the local government to carry out expropriation, compensation, and resettlement work within the designated scope. Encourage financial institutions to provide land use funding support to landlords through other financial instruments such as loans, corporate bonds, and corporate bonds.
This plan also leaves a certain space for private enterprises to participate in the land development process, that is, "other landowners with mature conditions need to submit a special report to the municipal government for approval.".
Short term or increased housing demand
Zhang Bo, the director of the branch of 58 Anjuke Real Estate Research Institute, told reporters that the renovation of urban villages in super large and mega cities has significant benefits in increasing the supply of high-quality rental housing, improving the living conditions of residents in urban villages, and enhancing the overall urban appearance.
"It is worth noting that the renovation itself will also bring about a lot of housing demand, leading to an increase in the demand for buying houses in the medium and long term in the city. In the short term, it may drive the heat of some regional sectors to increase." Zhang Bo said.
Guohai Securities believes that in order for the real estate market to move out of a stable rhythm of quantity and price, the current market needs to work together from multiple perspectives. Among them, the policy side needs to improve the quality of land supply. Actively and steadily promoting the transformation of urban villages in mega cities can not only make up for investment, but also free up good land for the transformation of urban villages. "The core land resources in first and second tier cities are scarce. In the past, the supply of core land was mostly through shantytown renovation. In recent years, the amount of shantytown renovation has decreased, and the number of core plots that can be sold has correspondingly decreased. Urban village renovation can effectively fill this gap."
However, in Li Yujia's view, the reason why the National People's Congress emphasized it as a "super large, mega city" is because other cities may not have net population inflows, and the amount of funds invested in urban village renovation is relatively large, making it difficult to promote.
"Because there is not such a large demand for renovation, and it is difficult to achieve financial balance, non super large or mega cities may not promote urban village renovation," said Li Yujia.
In super large and mega cities, Wang Yeqiang also believes that the biggest difficulty in renovating urban villages is also the issue of funding, which may be more prominent in the current context of a relatively sluggish real estate market.
He said that the current downturn in the real estate market undoubtedly affects the enthusiasm of social funds to participate in the renovation of urban villages. Furthermore, how is the renovation plan designed? The renovation of urban villages involves multiple stakeholders, and the situation varies from place to place. Choosing a suitable renovation plan based on local conditions is also crucial.
But from a different perspective, Wang Yeqiang said that if a suitable urban village renovation plan is adopted for the local area, it may attract the willingness of social capital to enter, which may make the urban village renovation a highlight and growth point for super large and mega cities during the downturn of the real estate market.
"From the experience of urban village renovation in the past, the government led renovation model has significant advantages, which can help urban village renovation conform to the overall planning of urban renewal. The key is to form a government led multi-party communication and coordination mechanism, and the government should actively overcome the constraints of existing policies to create a good institutional environment for urban village renovation." Wang Yeqiang said.
