Finance News on October 12th (Reporter Li Jie) Following the People's Bank of China and other three financial departments, the Ministry of Finance has also made a major move beneficial to stabilizing the real estate market.

On October 12th, the State Council Information Office held a press conference to introduce the relevant situation of 'intensifying countercyclical adjustments in fiscal policies and promoting high-quality economic development'. It pointed out that 'a series of targeted incremental policy measures will be introduced successively in the near future', and specified four major aspects. The measures for the real estate sector are an important area which reflects the significance of the real estate industry.

Regarding the real estate sector, the Ministry of Finance stated that they will 'superimpose the use of local government special bonds, special funds, tax policies and other tools to support the stabilization of the real estate market', and 'will adhere to strict control of increments, optimize the stock, improve quality, actively study and introduce policy measures conducive to the smooth development of real estate'.

Specifically, the Ministry of Finance has clearly defined the future direction of real estate financial policies from three aspects: allowing special bonds to be used for land reserves, allowing special bonds to acquire existing houses, and optimizing relevant tax policies.

Several analysts believe that the subsequent work of local governments acquiring existing commercial housing will accelerate, and policy support will help resolve inventory housing in bulk and rapidly, thereby addressing the inventory risks and pressures of existing commercial housing while accelerating the collection of indemnificatory apartments by local governments. At the same time, the Ministry of Finance is actively studying and clarifying the Value-Added Tax and Land Value-Added Tax policies that are linked to the cancellation of standards for ordinary and non-ordinary residences, with the industry expecting potential tax reduction initiatives in the real estate sector in the future.

"The focus of the real estate work in the fourth quarter of this year is to promote the recovery of the housing transaction market. With the revitalization of land and existing projects, there will be further room for optimization of the supply-demand relationship." Yan Yuejin, Deputy Director of E-House Research Institute, said.

The first mention of 'allowing special bonds to acquire existing houses'.

Local "purchase and storage" speed is expected to accelerate.

The Ministry of Finance pointed out this time that it supports local governments in purchasing existing housing stock to optimize the supply of indemnificatory apartments. Firstly, making good use of special bonds to purchase existing commercial housing for use as indemnificatory apartments in various regions. Secondly, continue to make good use of subsidies from the indemnificatory housing project to support local governments in raising housing sources through the digestion of existing housing stock.

"This time, the Ministry of Finance clearly stated the use of special bonds to purchase existing commercial housing to be used as indemnificatory apartments in various regions, which means the local government's special bonds are expanding," noted an real estate industry analyst.

According to Yan Yuejin, historically, special bonds generally do not involve real estate, in the past, real estate was mainly involved in supporting shanty town renovation and land reserves, rarely intervening in some finer areas of real estate; this time, the Ministry of Finance clearly stated that supporting the digestion of housing enterprise inventory sources is the first time.

He further stated that existing residential land projects include projects that have not started construction, projects that have started but not been sold, and projects that have started and been sold. According to the current fund direction, in the future, local government special bonds will focus on undeveloped residential land projects and residential land projects that have started but not been sold, with continuous efforts to digest the land assets and housing assets of housing enterprises.

The source of funds for purchasing existing commercial housing for indemnificatory apartments was previously more focused on the People's Bank of China's 300 billion yuan re-lending for indemnificatory housing for unsold completed commercial housing. This time, the Ministry of Finance clarified that local government special bonds can be used to purchase existing commercial housing, while also pointing out that subsidies from the indemnificatory housing project will also further support the digestion of existing housing stock. With more funds entering the market, it is expected to increase the clearance of existing unsold commercial housing under construction, further promoting supply-demand balance in the real estate market, which will have a positive impact on stabilizing market expectations," said Chen Wenjing, director of the policy research department of Zhongzhi Research Institute.

The above-mentioned analyst stated that although the regulatory authorities currently encourage social capital to acquire inventory commercial housing, to systematically advance this work, it needs to be implemented by local governments, while being linked to indemnificatory housing construction. It is expected that after the issuance of local government special bonds, their ability to purchase inventory projects will be greatly increased, helping to significantly and quickly resolve the inventory housing sources as well as speed up the comprehensive construction of indemnificatory housing.

Major tax reduction measures may be coming soon.

The tax policies of the real estate market are expected to be optimized.

This time, the Ministry of Finance pointed out that it is timely to optimize and improve relevant tax policies. Currently, efforts are being made to research and clarify the value-added tax and land value-added tax policies that are in line with the standards for ordinary and non-ordinary residences. Next, further research will be conducted to increase support, adjust and optimize relevant tax policies to promote the stable and healthy development of the real estate market.

"This mention of tax tools supporting the stabilization of the real estate market essentially indicates that, following a series of significant policies by the central bank earlier, there will be a major tax reduction in the real estate sector," said Yan Yuejin.

Li Yu Jia, Chief Researcher of the Housing Policy Research Center of the Guangdong Provincial Urban and Rural Planning Institute, also believes that tax policies will be a key focus in the future, and there may be measures such as reducing or exempting transaction deed tax, value-added tax, and personal income tax on second-hand housing transactions.

"Currently, various regions are speeding up the implementation of relevant policies for canceling the standards for ordinary residences. The difference in taxes and fees between ordinary and non-ordinary residences mainly manifests in two aspects. On one hand, canceling the standards for ordinary residences helps to reduce the value-added tax for residents buying non-ordinary residences. After canceling the standards for ordinary residences, the details of policies such as the tax rate for property value added tax and the exemption period still need to be clarified. In this process, coordination among relevant departments is also needed," said Chen Wenjing.

Furthermore, he stated that in terms of land value-added tax levied on developers, according to the "Interim Regulations of the People's Republic of China on Land Value-added Tax," if the taxpayer constructs ordinary residences for sale and the value added does not exceed 20% of the project amount deducted, the land value-added tax will be exempt. If the enterprise develops and constructs non-ordinary residences, the land value-added tax will be levied on the full amount of their value added. After canceling the standards for ordinary residences, adjustments to the land value-added tax policy will also need to be detailed.

In addition, analysts point out that currently the market is more focused on deed taxes, and it is not ruled out that there may be further optimization and adjustments in deed taxes and other areas in the future.

"Based on past experience, the reduction of taxes and fees will generate a significant 'cost reduction' effect, which is beneficial for releasing market demand," said Li Yu Jia.

Overall, there is still room for optimization in future tax policies to support real estate. The market has certain expectations for optimizing deed tax policies, increasing the personal income tax deduction limit for home loan interests, and adjusting the prepayment tax rates for enterprise real estate-related taxes and fees, which will reduce residents' home purchase costs, alleviate pressure on real estate enterprises, and help further stabilize market expectations. Chen Wenjing said.

Allowing special bonds to be used for land reserves.

Another highlight of this policy is allowing special bonds to be used for land reserves.

The Ministry of Finance explained at the press conference that this move is mainly considering the relatively large amount of idle undeveloped land in various regions at present. It supports local governments in using special bonds to reclaim eligible idle stock land. In areas with a genuine need, the funds can also be used for new land reserve projects.

It is reported that the Ministry of Natural Resources has previously issued a document specifying that for reclaiming and purchasing land for indemnificatory apartments, support can be provided through funds such as local government special bonds. The central bank has also stated that it will further clarify the funding support policies for enterprises conditionally market-oriented in purchasing land from real estate companies, and provide refinancing support when necessary.

"The Ministry of Finance has further clarified that allowing special bonds to be used for land reserves and supporting local governments to use special bonds for acquiring stock land will help accelerate the pace of reclamation and acquisition of idle stock land, promote destocking in the market, and drive the balance of supply and demand in the real estate market." Chen Wenjing said.

In Li Yu Jia's opinion, allowing special bonds to be used for reclaiming idle land will combine destocking and revitalizing stock to achieve a dual effect of stabilizing the real estate market and stabilizing the land market.

"It is worth noting that this meeting has explicitly stated that special bonds can also be used for new land reserves, which is a major change. In the past, land reserves mainly relied on local state-owned enterprises’ land sales or land mortgages to finance. Now, local governments can issue special bonds, greatly breaking through the current constraints on land revitalization and reserves due to difficulties in land sales and heavy debts of state-owned enterprises in urban investment bonds." Li Yujia added.

Chen Wenjing stated that overall, the supporting funds for revitalizing idle stock of land are expected to accelerate implementation, supporting reasonable land withdrawal and exchange by real estate companies, which will generate substantial bullish effects for local governments and real estate companies.

Analysts pointed out that the Ministry of Finance's speech and clear policies this time will implement systematic work in terms of "strictly controlling increment, optimizing stock, and improving quality". Based on this, the market expects that the work of relevant departments in the second half of this year may focus on several key areas.

"For the new supply, appropriate control is needed, while increasing the acquisition and transformation of existing stock, especially promoting inventory reduction through local government special bonds, implementing various measures to better assist in the enhancement of quality in the real estate sector," said Yan Yuejin.

In fact, the Central Political Bureau meeting on September 26 set the tone of "promoting the stabilization of the real estate market", releasing the strongest "stabilizing the real estate" signal so far. Subsequently, new real estate policies were successively introduced in first-tier cities at the end of September, greatly boosting market confidence and significantly increasing real estate sales during the National Day holiday.

After the recent introduction of fiscal measures to stabilize the property market, Chen Wenjing believes that the real estate 'package' of supporting policies is expected to accelerate implementation. It may revolve around implementing existing stock policies, accelerating the introduction of incremental policies, optimizing adjustments to policies for unsold commercial housing owned by local state-owned enterprises to further unblock inventory choke points; increase the intensity of 'white list' loan issuance; at the same time, there are expectations for adjustments to policies such as further optimizing restrictive policies in core cities, reducing transaction taxes and lowering transaction commissions.