The housing prices in Guangzhou have fallen for 12 consecutive months, with some new properties requiring only a 12-yuan down payment. What impact will this have on the real estate industry? Will the prices continue to fall?

Analysis of Housing Market Trends and Policies in Chinese Cities

Several points worth discussing:

1. A continuous decline for 12 months signifies that the policy requirements for “Phased Cancellation of the Minimum Interest Rate for First Home Loans” will soon be met. As a strong economic region in the southern part of the country, Nanjing, the capital city, has already begun to implement this policy. Guangzhou, being an early adopter among first-tier cities to use housing loan interest rates to stimulate the economy, made a breakthrough in September this year. The first home loan rate in Guangzhou broke through the LPR lower limit, becoming the first first-tier city to do so. The latest policy states that for Guangzhou residents without a house, the down payment for the first house is 30%, with an interest rate of LPR - 10%, i.e., 4.1%. Moreover, the criteria for identifying a first home have been revised and interest rates have been lowered. For Guangzhou residents with one house that is either fully paid off or not on mortgage, the second home can be purchased with a 30% down payment and an interest rate of LPR - 10%. If a Guangzhou resident has one house with an ongoing mortgage, the down payment is 40%, with an interest rate of LPR + 30BP, i.e., 4.5%.

Is that all? No, further breaks in the interest rate lower limit are possible if there’s a continuous year-on-year and month-on-month decline. Guangzhou could first adjust to the national common lower limit of LPR - 20bp. If face-saving measures are maintainable, it might become the first among first-tier cities to dare to implement the “Phased Cancellation of the Minimum Interest Rate for First Home Loans”. This policy is intended for cities with excessively falling housing prices and high risks, depending on whether they prioritize face or substance.

2. The large base effect of price reductions in first-tier cities is significant. Discussing a financial product crisis in Shenzhen today, many are engaging in mortgage loans due to the high valuation of these ‘broken’ houses. High valuations and selling prices mean that even a 5% drop represents a significant loss of paper wealth. Often, this wealth was never truly generated, resulting in the greatest losses for investors at high positions. In first-tier cities, house prices often range in the millions or tens of millions of yuan. A 10% decrease equates to the price of a house in a fourth- or fifth-tier city. Remember, the purchasing power is still in yuan. Many of China’s so-called middle class, apart from their houses, are in debt, especially those who leverage to the extreme for investment. Leverage can magnify gains in a rising cycle and magnify losses in a downturn, a double-edged sword. Interestingly, do some still believe that housing prices will always rise? Pessimists might even cause prices to fall below practical value.

3. The booming sales of luxury houses are similar to global monetary policy and monetary transmission. In our case, it’s mostly indirect benefits. We only see banks providing money on a large scale and governments accruing significant debt, but most people don’t feel nourished by these policies. However, this doesn’t prevent a minority from profiting. Who are the ones most keen on advocating and promoting massive monetary easing? Loose monetary and fiscal policies with extremely low efficiency only exacerbate wealth inequality and uneven distribution. If it’s just targeted cash distribution, it might be better not to use these two stimulus policies, as history has shown that overuse can have significant costs.

But have you ever seen a Ponzi credit scheme sustained without ordinary people picking up the tab? The current situation is just like this. No matter how hot the luxury house market is, if the base of the pyramid is hollow, the real estate bubble remains a castle in the air. When the supply-demand relationship reverses, the market will adjust itself. Either potential buyers' incomes are increased, or housing prices and costs (interest) are reduced to a range affordable for the actual demand. Isn’t that a good thing? Let’s not always talk about the cost of decline. Continuous rise hasn’t brought relief to the masses, especially the pressure on young people.

4. The popularity of near-ready houses is inevitable. The characteristic pre-sale system essentially relies on unstable credit to support extremely uneven distribution of rights and obligations. Profits are taken away while risks are completely transferred to residents. Once there’s a credit default, no one dares to play along anymore unless it’s near-ready or ready houses. Therefore, it’s imperative to try ready house sales at this stage, which is inevitable following market credit defaults. Is your credit still valuable?

In summary, the market’s self-correcting post-boom clearance is inevitable, and policies can only slow down the decline. To make a change, it’s necessary to start from the demand side’s most concerning issues. No matter how many policies are introduced on the supply side, the market’s response might still not be very optimistic. At this stage, it’s a choice between face and substance, bubble and pragmatism.

Analysis of Risky Real Estate Practices in Guangzhou

Guangzhou, known as the first-tier city that pioneered the issuance of housing tickets (Jinyuan Quan), has recently caught attention with a real estate project offering a 12-yuan down payment. The project, named ‘Oceanus Tiancheng’, is developed by Oceanus Real Estate, incidentally the first state-owned real estate company in China to face a financial crisis. These two ‘firsts’ coming together hardly seem like a harbinger of good news.

The 12-yuan down payment is a classic case of high appraisal and high loan practices, involving fake contracts. Interestingly, a recent revelation about a property in Shenzhen, neighboring Guangzhou, saw its valuation drop from 6 million to just over 2 million yuan.

The scheme works by inflating contract prices. A property, originally priced at 16,500 yuan per square meter, covering an area of 69 square meters and totaling 1.1385 million yuan, is contracted at 23,900 yuan per square meter, increasing the total price to 1.6491 million yuan. With a 30% down payment, a bank loan of 1.1543 million yuan can be secured, which is even higher than the actual total price of the property. In this case, the developer returns the entire 30% down payment of 494,700 yuan to the buyer in cash, effectively reducing the down payment to zero. The touted 12-yuan down payment is merely a misleading figure thrown in by the developer to avoid accusations of fraud. In reality, if one negotiates well about channel rebates, the developer might even end up paying the buyer.

This method is undoubtedly a violation of banking loan regulations and poses potential risks for both developers and buyers.

For buyers, this practice maximizes leverage, putting them at risk of default if their income is affected.

For developers, returning the 30% cash payment is an illegal act. Accounting it under marketing expenses clearly exceeds the deductible limit for land appreciation tax, which means the developer is liable for this tax again.

Such blatant rule-breaking, widely publicized, suggests tacit government approval. Considering that this is happening in a city known for its unconventional approach to housing finance, such regulatory violations may not seem surprising.

Who dares to buy?

The gentleman who bought it can come out and share their experience.

Certainly, it’s going to drop. Fasten your seatbelts, okay?

You can’t kill a pig like this.

There is still room for policy to exert more force.

Well, there is still some room for housing prices to drop.

A 12 yuan down payment? It doesn’t really have any impact.

“It’s still quite challenging, no improvement to speak of, only slightly better sales for off-plan properties.”

The slightly better sales for off-plan properties indicate that even those who are genuinely buying houses have lost trust in pre-sale properties.

It seems so!

When discussing recent sales conditions, a marketing professional from a certain real estate company in Guangzhou said so. To break the market stalemate, some real estate companies have adopted unconventional sales methods, such as a recent release of discounted homes in the Zengcheng District, where the down payment is only 12 yuan.

Inevitable Continued Decline: A Bleak Outlook for Guangzhou

The housing market in Guangzhou is bound to continue its downward trend. In fact, there’s not much to analyze – the economic prospects of Guangzhou are bleak, as evident when you open job search platforms. Without a strong economic foundation, housing prices are bound to fall. Even essential services like healthcare and education rely heavily on government funding. Look at the so-called “Guangzhou landlords” who wear slippers while collecting rent and enjoying rice noodle rolls, they don’t care if Guangzhou is still considered a top-tier city; they can’t sustain this facade for much longer.

Take a look at places like Panyu, Wanbo, and Pazhou – how many of those impressive office buildings are occupied by companies? Wanbo claims to be the second CBD of Guangzhou, but beneath the fancy office towers, you’ll find walls plastered with psoriasis ads for small rental spaces. It’s truly a farce. People often say that Shenzhen’s property market is cutthroat, but if you look at Guangzhou’s recent speculative frenzy, it’s even more exaggerated. The real downward spiral in prices hasn’t even begun yet.

Many people overlook the fact that Guangzhou was one of the earliest cities in the country to loosen property regulations. It was among the first-tier cities to introduce real estate stimulus policies, and property tickets are still being promoted in Guangzhou. It’s clear to anyone with a discerning eye that Guangzhou is in a hurry because it heavily relies on land-related revenue. Other industries have little hope left. In this context, you can still hear some Guangzhou residents saying they don’t care if the city is considered top-tier. Well, do you not care, or does nobody care whether you care or not? The rise and fall of cities are ongoing processes, and even if no city replaces Guangzhou, it’s drifting further away from the leading trio of Hangzhou, Chengdu, and Chongqing, and getting closer to them.

Guangzhou Real Estate Market: Facing a Bleak Outlook

If you had the choice between buying a house in Guangzhou for 5 million yuan or in Foshan for 3 million yuan, what would you choose?

If you have a functioning brain, most would opt to buy a property in Foshan and rent one in Guangzhou. This combination is still more cost-effective than buying in Guangzhou.

Currently, some still believe that properties in super first-tier cities hold investment value, which is why Guangzhou’s housing prices can stand out while others fall.

However, we must face the reality that Guangzhou’s housing prices are exorbitant. Even with a monthly salary of 40,000 yuan (equivalent to an annual income of 480,000 yuan), you may still struggle to independently buy a new house (it would take at least 10 years without any other expenses, not factoring in mortgage interest).

The prices of new homes in Guangzhou have reached a point where it’s nearly impossible to afford one without selling your existing property. In fact, the prices of second-hand homes in Guangzhou have already plummeted significantly. Some high-quality, relatively new homes are even approaching the 3 million yuan mark. This highlights the pressing issue of high housing prices in Guangzhou.

In the past, the reason for buying property in Guangzhou was to secure urban household registration, access quality schools for children, and ensure healthcare for the elderly. But now, with the implementation of equal rights for renting and buying, the urgency to purchase a property has diminished. Moreover, with the sharp decline in property prices in the surrounding areas, are young people still willing to be taken advantage of as naive buyers?

The problem of high housing prices in Guangzhou has become increasingly prominent, and as a result, there is a stronger trend of population outflow. With most people unable to afford homes, they are inclined to purchase properties in the outskirts, and properties in the core areas receive less attention. Consequently, the support for housing prices continues to decline.

The reason Guangzhou’s housing prices are still holding up is largely due to the high initial cost of land acquisition, as developers are reluctant to cut prices unless absolutely necessary. However, the fact that market demand is weakening cannot be concealed.

A minor price reduction will slow down the pace of inventory clearance. The real estate crisis in Guangzhou is not nonexistent; it has simply been postponed due to enthusiastic investment. Yet, the combined efforts of private and government investments may not be sufficient to support housing prices in Guangzhou. Therefore, a future price decline remains a highly probable event.

In reality, Guangzhou’s current real estate market is more about listings than actual transactions. People are buying properties with the intention of flipping them, creating an illusion of stability. However, these properties are not selling.

If Guangzhou’s housing prices remain stubbornly high, the accumulating downward pressure will continue to grow. Developers' financial constraints will also increase, possibly leading to a scenario where they cannot sell even after price cuts. This could trigger market panic, eventually leading to price corrections.

Therefore, the gap between listing prices and actual transaction prices is expected to widen further, indicating that the decline in Guangzhou’s housing prices has only just begun.

Don’t fixate on the down payment.

Real commitment only comes when 0% interest loans become available someday.

There will be more and more experts advocating for birth rates and population, otherwise, where will so many potential successors come from?

0% down payment, still carrying debt.

I’m not interested in real estate jokes.

The market trend indicates the actual value of the house.

If you don’t buy, I won’t buy; the house can still drop by two hundred.

If you don’t loan, I won’t loan; the mortgage can still be two bucks cheaper.

Precise Prediction of RMB Assets' Downturn in Late 2022

In the realm of RMB assets, starting from 2023, a phenomenon referred to as the “Four Killers” (stocks, bonds, foreign exchange, and real estate) emerged. Numerous funds and trusts went bankrupt, a significant number of high-net-worth individuals and the middle class experienced a downturn, and the employment situation became more severe. For more details, please refer to my previous responses on Zhihu, including “Why Does the Zhongzhi Group’s Major Financial Event Seem Calm?” and “Why Are Netizens Celebrating the Zhongzhi Group’s Suspected Bankruptcy?” I want to emphasize that I have always maintained my stance of not shorting RMB assets; it’s a principle I adhere to.

In 2024, the domestic real estate market will continue the trend seen in 2023:

1. Non-core areas of first-tier cities and housing prices in second, third, fourth, and fifth-tier cities will continue their bottom-finding process.

2. Amid a deteriorating balance sheet, there will be increased competition for core assets, with distinct structural features. For example, in the past two years, new and relatively new properties in Beijing’s Dongcheng, Xicheng, and Haidian districts have continued to appreciate. On average, my properties have gained less than 5% in value since the beginning of 2023.

Reviewing 2023, moving from A9 to A10; looking ahead to 2024 and the journey towards A11. With the SEC approving a Bitcoin spot ETF and the market trends related to Ethereum, my assets have reached new heights. Has China entered a “balance sheet recession”? Based on my “black hole asset” theory, I predicted the significant rise in US stocks. Let’s revisit my classic 2023 annual predictions. It appears that the bear market in US stocks is coming to an end, and while others panic, I remain greedy. Revisiting the topic of US stocks and cryptocurrencies at the bear market’s end from a new perspective.

90% of human thinking ability, principles of action, and problem-solving methods are all Yuan Shao-style behavior;

Hesitating, constantly looking back and forth, unable to distinguish between primary and secondary contradictions, unable to let go of interests, missing the best opportunity to solve crises.