The industry value chain is undergoing reconstruction | Building a new real estate model (10)

China’s real estate industry is at a turning point between old and new models.

**　　The old model is difficult to sustain, and both within and outside the industry there has already been consensus on this.** But that consensus does not come from an understanding of the new model—in fact, the industry’s perception of the new model is rather vague; instead, it comes from a series of soul-searching questions—why did the industry see systemic blowups? Why, during the downturns and crises in 2008, 2011, 2014, and 2018, did the industry fail to form a corrective mechanism? Why was the industry’s financing structure almost entirely debt, thereby allowing risk to spread into finance?

To answer the question of why the old model can no longer be sustained, it is not enough to simply criticize the “three highs” model (high leverage/high indebtedness, high turnover, and high gearing); it is also not enough to merely reflect on a self-reinforcing loop built on land as collateral, finance as the leverage, and expectations of rising housing prices.

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