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As of this year, sales in the real estate sector have declined, but the real estate investment has registered a certain amount of growth. What is your opinion on that? What do you expect the future real estate market to look like? Thank you.

Fu Linghui:

Thank you for your questions. People are concerned about the real estate market, and there has been much discussion on the recent changes of real estate indexes. According to historical records, in general, the growth of real estate investment is directly proportional to that of sales in commercial buildings, but the change in growth of real estate investment is markedly less than that of the commercial building sales. That is because once the construction of a real estate project begins, real estate companies continue construction to ensure they get their money back from the project's sales, and thus real estate investment is more stable than the sales. Therefore, even though market sales are sluggish and declining, it is still possible for real estate investment to maintain certain growth, as was the case in 2012, 2014, and 2015.

In the first quarter of 2022, the investment in real estate development increased by 0.7% year on year, but sales of commercial buildings by floor area declined by 13.8%, and sales volume by 22.7%. Therefore, real estate investment continued to increase while sales decreased. That was mainly due to the following reasons. 

First, the effect of relevant policies, such as ensuring delivery. Since the end of 2021, all regions have stuck to the policy of “ensuring delivery, people's basic living needs, and stability,” promoted the resumption of real estate projects previously halted or delayed, and advanced the construction of ongoing projects. In the first quarter, real estate projects with a construction period lasting more than one year saw a rate of investment growth exceeding 10%. With the advancement of real estate projects, in the first quarter, investment in building installation projects in real estate development grew by 0.9% year on year, driving the growth of real estate investment by more than a 0.5 percentage point.

Second, the impact of counting in land purchase expenses. Earlier land purchase expenses are gradually counted into the investment of real estate development while construction of real estate projects advances, which partly accounts for the growth of real estate investment. In the first quarter, land purchase expenses grew by 0.6% year on year, increasing the real estate development investment by more than a 0.1 percentage point.

We should also notice that although the sales of real estate dropped, the sales volume of real estate still exceeded the total investment in the real estate market, and so sales could still support the investment to some extent. Meanwhile, the growth of real estate investment was influenced by prices. Since 2022, prices of construction materials and project installation fees have increased substantially, which drove the nominal increase in the real estate investment to some extent. 

As for the real estate sector's prospects, though real estate sales are declining, as many regions moderately release restrictions on house purchases, lower thresholds for using housing funds, and accelerate approvals of loans for purchasing houses, the housing demands of some cities are released, and the decline of sales by floor area slows. 

Going forward, all regions will stick to the principle that houses are for living in, not for speculation, and continue to stabilize land prices, housing prices, and expectations. The long-term mechanism of the real estate market will be improved to meet reasonable housing demands, and the declining sales of commercial buildings in China is likely to be moderated. With the improvement of the long-term rental market and the accelerated development of government-subsidized housing, the real estate market is expected to be gradually stabilized. Thank you.