How to Understand the "New Model" of Real Estate Development

First, how to understand the "new model" of real estate development? Where is it "new"? From the details of policy-related statements, we can form a rough understanding framework:

First, it conforms to the demand for housing upgrades, encouraging "good houses" and cultivating an incremental market beyond the existing stock. Under the premise of a fixed total market capacity, high-quality supply can still create a structural incremental market. Taking the automotive industry as an example, many years ago, there was a view that the Chinese automotive market was already saturated, but later, the reality of industrial development proved that after the emergence of new energy vehicles as a new generation of products, an incremental market quickly rose. Regarding real estate, policies clearly state the need to "increase the supply of high-quality housing" and "promote the construction of safe, comfortable, green, and smart good houses" [4]. In the medium term, our understanding is that it follows the basic law of demand upgrading, constructing housing that better represents the new generation standards in terms of height, design, building materials, environmental protection, and aging-friendly features, encouraging a high-quality incremental market to gradually replace the old.

Second, improve the supply-demand relationship in the existing stock market through the acquisition of commercial housing. What about the existing supply part? At the end of April 2024, the Politburo meeting proposed "coordinated research on digesting existing real estate and optimizing incremental housing policy measures" [5]. On May 17, the central bank established a 300 billion yuan re-loan support for the acquisition of existing housing [6]. In June, the Ministry of Housing and Urban-Rural Development held a video conference on the acquisition of completed existing commercial housing for use as affordable housing [7]. In October 2024, the Ministry of Finance further clarified support for local special bonds to be used for the acquisition of existing commercial housing for affordable housing [8]. Considering that the acquisition of existing housing still faces some difficulties and bottlenecks during implementation, the Politburo meeting at the end of April 2025 further pointed out the need to "optimize the acquisition policy for existing commercial housing" [9]. Theoretically, there is still room for optimization in pricing mechanisms, re-loan interest rates, and post-acquisition disposal. In the medium term, improving the supply-demand relationship of existing housing through "fiscal funds driving + central bank re-loan support + forming a sustainable business model" should be a basic direction.

Third, upgrade the living experience through more systematic renovation of old houses and urban villages, driving urban renewal. The rapid release of the policy dividends from the "two new" policies proves that there is an endogenous demand for "upgrading old for new" in equipment and durable consumer goods. Houses are not completely the same in characteristics, but there is still a demand for renovation. On March 9, 2025, the press conference of the third session of the 14th National People's Congress clarified several points [10]: (1) All old urban communities built before 2000 should be included in the renovation scope; (2) The scope of urban village renovation projects has been expanded to cities at the prefecture level and above nationwide, aiming to continue expanding the renovation scale based on the addition of 1 million units last year; (3) Vigorously promote the construction of complete communities, focusing on supporting infrastructure related to "the elderly and children." In the medium term, we estimate that the renovation of old houses and related urban infrastructure updates will be an important component of the real estate market.

Fourth, reform and improve the fundamental systems related to the development, financing, sales, and use of commercial housing. The real estate market has long been a seller's market with rapid demand growth, and the existing fundamental systems are all matched with this basic characteristic However, in recent years, the supply and demand relationship in the real estate market has undergone fundamental changes, and the relevant foundational systems should be adjusted accordingly. This includes aspects such as land finance, real estate investment and financing, housing sales, and post-sale maintenance. In November 2023, the Ministry of Housing and Urban-Rural Development explicitly pointed out the need to establish a new mechanism for the interaction of the elements of "people, houses, land, and money" in constructing a new model for real estate development; to establish a full lifecycle management mechanism for housing from development and construction to maintenance and use, including reforms in development methods, financing methods, and sales methods, as well as establishing systems for housing inspections, housing pensions, and housing insurance.

This article is sourced from: Guo Lei Macro Tea House, author: Guo Lei, original title: "How to Understand the 'New Model' of Real Estate Development by the GF Macro Team," content has been edited