How is it different from that shantytown renovation?, Multi city intensifies layout of urban villages for urban transformation | Inventory | Urban villages
The real estate industry is once again facing a heavyweight policy adjustment.
On July 21st, the Executive Meeting of the State Council approved the Guiding Opinions on Actively and Steadily Promoting the Renovation of Urban Villages in Super Large and Mega Cities. Under the economic situation of stable growth and expanding domestic demand, the new round of urban village renovation has attracted much attention. In addition to revitalizing existing urban assets and updating the urban landscape, to what extent will the real estate industry benefit?
The industry believes that the renovation of urban villages is an inevitable choice for restoring domestic demand and consumption potential, which helps to build a new model of renting before buying, gradually upgrading housing consumption for new citizens, and creating conditions for the sustainable development of the commodity housing market. The policy not only drives some construction opportunities, but also creates a large number of operational service opportunities, which is beneficial for enterprises with comprehensive asset operation capabilities.
It is worth noting that this round of urban village renovation cannot be equated with historical shantytown renovation. The round of shantytown renovation from 2015 to 2017 initiated a wave of destocking in third - and fourth tier cities; This round of renovation is limited to super large cities and does not involve extensive demolition and construction. It can be said that it is a "tough nut" reform, with slower capital investment and more gradual marginal economic growth.
Multiple cities have accelerated the transformation of urban villages
As early as April 28th this year, the promotion of urban village renovation was mentioned in an official meeting. At that time, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to actively and steadily promote the transformation of urban villages and the construction of public infrastructure for both urban and emergency use in mega cities.
In the process of urbanization development in our country, urban villages in big cities occupy core locations, but their supply efficiency is low, which does not meet the needs of new citizens or high-quality development. In the new era of real estate development, strengthening the transformation of urban villages is an inevitable trend.
According to the requirements of the National People's Congress, the transformation of urban villages in mega cities should be carried out steadily, actively and prudently. Priority should be given to the transformation of urban villages that have urgent needs for the people, high risks of urban safety and social governance, and mature ones should be promoted one by one, and each implementation should be completed one by one.
According to the seventh national census data, there are currently seven mega cities in China, namely Shanghai, Beijing, Shenzhen, Chongqing, Guangzhou, Chengdu, and Tianjin; 14 mega cities, including Wuhan, Dongguan, Xi'an, Hangzhou, Foshan, etc. Among them, many cities have increased their efforts in urban village renovation and innovated renovation methods in recent years, and have set clear goals.
Guangzhou is at the forefront of relevant legislative work. On July 17th, the Guangzhou Housing and Urban Rural Development Bureau issued a collection of "Guangzhou Urban Village Renovation Regulations", which is its first legislative work on urban village renovation and also the first local regulatory regulation that is expected to be introduced specifically for urban village renovation in the country.
According to the official plan of Guangzhou, this year Guangzhou plans to promote 127 urban village reconstruction projects, focus on 17 urban renewal projects, and strive to achieve the goal of 200 billion yuan of fixed assets investment in urban renewal.
Shanghai will designate 2023 as a year for the transformation of urban villages to create an image and achieve results. It will launch 10 new "urban village" transformation projects, renovate no less than 1.3 million square meters of old village houses, and benefit no less than 4000 households. At present, there are nearly 700 urban village sites in Shanghai, involving about 110000 households. The city plans to fully complete the urban village renovation project by the end of 2032.
The Shenzhen model is relatively unique, targeting the renovation of urban villages, which is carried out by the government through unified leasing and comprehensive renovation, and included in its policy housing security system. According to relevant documents released by the Shenzhen Housing and Construction Bureau, from 2023 to 2025, Shenzhen will build and raise 460000 units of affordable housing with a construction area of over 20 million square meters.
Industry insiders believe that young people and migrant workers are mainly concentrated in mega cities, especially in urban village areas. Promoting the transformation of urban villages in mega cities can connect supply side reform with high-quality development and demand side management, solve the contradiction of imbalanced and insufficient urban development, and truly unleash consumption potential and domestic demand through full coverage of public services.
There are many differences from the previous wheel shed renovation
In the process of urbanization development in our country, the round of shantytown renovation on the third and fourth lines is difficult to ignore. What kind of chain reaction will this urban village renovation have on the industry, and what are the similarities and differences with historical shantytown renovations? This has attracted industry attention.
As early as 2015, the country proposed actively promoting the monetization of shantytown renovation and resettlement, and the wave of destocking in third - and fourth tier cities began from then on; At that time, due to the timeliness and convenience of monetary compensation, the promotion of monetization and resettlement of shantytown renovation directly activated the sales process of commercial housing, and phased out the problems of high real estate inventory and economic downturn.
However, this double-edged sword has also pushed up housing prices nationwide, especially in the third and fourth tier, increasing the debt burden on local governments and residents. In 2018, the Executive Meeting of the State Council proposed to adjust and improve the monetized resettlement policies for shantytown renovation according to local conditions. Cities and counties with insufficient inventory of commercial housing and high pressure of rising housing prices should cancel the monetized resettlement preferential policies as soon as possible.
By 2020, the Ministry of Housing and Urban Rural Development has clearly stated that future urban planning should abandon the pursuit of quick success and large-scale demolition and construction. In 2021, the Notice on Preventing Large scale Demolition and Construction in the Implementation of Urban Renewal Action proposed to avoid excessive real estate development and construction methods, strictly control large-scale demolition, expansion, and relocation, and gradually reduce the scale of shantytown renovation.
Under the top-level policy design of "housing for living, not for speculation", the renovation of urban villages in the new era is clearly different from the previous shantytown renovation. CITIC Securities published a research report stating that the two have differences in terms of region, work methods, and beneficiaries.
In terms of coverage areas, the previous shantytown renovation targeted the whole country, with funding as the main means and large-scale demolition and construction as the main model. Therefore, progress is fast in third - and fourth tier cities where demolition is relatively easy. This round of urban village renovation is limited to mega cities, starting from the actual needs of residents and the objective reality of the city, and carrying out urban village renovation in large cities with a population inflow industrial foundation.
"Due to the more complex situation of urban villages in first tier cities, this round of reform can be said to be a tough reform, which may mean slower investment speed and more gradual marginal economic growth. However, it may also mean less long-term side effects of policies and less social controversy." CITIC Securities believes.
In terms of work methods, the previous shantytown renovations were mostly large-scale demolition and construction, while the current urban village renovations are more refined and specific. "Urban village renovation refers to the environmental renewal of urban functional areas with more complex and comprehensive collective land use. It includes comprehensive renovation through demolition and reconstruction, micro renovation to maintain the architectural pattern, and mixed renovation between the two."
In summary, the previous shantytown renovation has driven a considerable demand for construction, while the urban village renovation requires "advancing one mature project and implementing one project at a time". From the perspective of driving investment, CITIC Securities believes that the incremental impact of this round of urban village renovation, whether it is real estate development or infrastructure construction, will be lower than before and after 2015.
Urban renewal is becoming more "smooth and sustainable"
Setting aside differences, both urban village renovation and shantytown renovation have a dual policy goal, which is to improve people's livelihoods while expanding domestic demand.
According to a research report by CITIC Securities, from 2008 to 2020, the transformation of various types of shantytowns in China continued to advance, driving effective investment and consumption of building materials, decoration, home appliances, and other industries, promoting the development of upstream and downstream related industries, and playing a positive role in stabilizing growth.
However, the strong stimulation of the previous round of urban renewal on real estate and the resulting chemical reactions may be difficult to replicate now.
The Guotai Jun'an Research Report once stated that the upward cycle of third - and fourth tier cities promoted by shantytown renovation from 2015 to 2017 has three prerequisites: firstly, land transfer is a closed loop of government initial investment funds, which requires support from real estate enterprises to expand their scale and acquire land; Ensuring dynamic balance through industrial development and population migration to cities; Financial support is needed for the government to leverage as a catalyst, and at the macro level, it is also a new channel for broad credit.
Looking at the current industry situation, real estate companies are in a state of shrinking their balance sheets, and various investment efforts are relatively limited. At the same time, the current round of real estate risks began with liquidity issues, and inventory is not the core of the current real estate contradiction. The space available for urban renewal in various cities is also relatively limited, and urban villages in big cities have complex property rights issues and high surrounding housing prices, resulting in high renewal costs.
For a long time, due to the particularity of China's land system, there have been two different land rights between urban and rural areas, and two different expropriation compensation systems are applicable. Previously, shantytowns were mostly converted to state-owned land, and the "Regulations on the Expropriation of Houses on State owned Land" were applied. After monetary resettlement, some funds flowed back into the real estate market; Urban villages are mostly collective land, and demolition is still carried out in accordance with the Land Management Law. There are significant differences in land acquisition, state-owned transfer of collective land, and resettlement methods among different regions.
In terms of funding sources, "funds related to addressing the shortcomings of public service facilities need to be led by state-owned enterprises and resolved through policy financial instruments, special bonds, and fiscal incentives instead of subsidies," said Li Yujia, Chief Researcher of Guangdong Housing Policy Research Center. Some industry insiders also argue that the scale of special bonds is limited, and it is necessary to leverage the driving effect of policies, introduce funds from multiple sources into the market, and leverage the amplification effect to drive development.
The State Council also requires that urban people's governments take the main responsibility, 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. Fully leverage the decisive role of the market in resource allocation, encourage and support the participation of private capital, strive to develop various new business formats, and achieve sustainable operation.
In summary, future urban renewal will be more gradual and sustainable, making it difficult for real estate to replicate large-scale stimulus. Industrial Securities stated that large-scale stimulus to the real estate industry may not be the solution to support the economy. In the long run, the real estate industry may usher in a new development model, and the era of stimulating real estate to boost the economy may be gone forever.
Guotai Junan stated that the current economic growth has shifted from capital driven to total factor productivity driven, and selling land for development has instead brought more debt and high inventory problems. The new rules of asset management restrict financing for real estate enterprises, becoming a catalyst for the transformation of old and new models. The role of real estate will shift from driving industries to industry driven, and the prosperity model of real estate that once blossomed nationwide will no longer exist. Urban clusters formed by the aggregation of high-end manufacturing industry chains have great potential.
