Zhang Zheng: Real Estate Development Model Shifts, "Effective Inventory Reduction" Should Not Be Simplified to Quantitative Targets for Disposing Existing Housing Stock

How can AI-driven inventory clearance investment funds achieve sustainable capital circulation?

By Dong Hongyan, Beijing Report

China’s economy is currently at a critical juncture of cycle transition and structural transformation. The real estate market is shifting from rapid expansion to stock-led development. Effectively revitalizing existing assets and establishing new models for real estate development are key issues in the economic field.

On March 17, following the 2026 Peking University Guanghua Two Sessions, several authoritative scholars offered their insights on economic trends and real estate adjustments. They believe that China is entering a new long-term cycle driven by fundamental factors. The prolonged downward pressure on prices is expected to reverse soon, and short-term real estate cycles are gradually bottoming out. Regarding the revitalization of stock assets, the understanding of inventory reduction needs to shift from simple disposal of properties to systemic, sustainable, long-term arrangements.

Professor Zhang Zheng, Vice Dean of Peking University Guanghua School of Management, proposed that effective inventory reduction should be based on medium- and long-term perspectives. This involves establishing replicable, sustainable institutional mechanisms that evaluate success across three dimensions: assets, people’s livelihoods, and finance. Approaches include setting up specialized inventory clearance investment funds, improving multi-tiered REIT markets, and optimizing long-term funding policies. The goal is to transform real estate from “selling houses” to “selling services,” upgrading development and sales to holding, operation, and asset management.

New Ideas in the New Situation

Regarding the current economic situation, many scholars are relatively optimistic. Associate Professor Zhang Zheng of Peking University Guanghua School of Management and Deputy Director of the Peking University Institute of Economic Policy pointed out that China is entering a new cycle driven by long-term factors. The issues of overcapacity and declining prices that have troubled China in recent years are changing under the influence of international circumstances and technological innovation. With external demand and cost factors driving, China’s over three-year downward price cycle may be approaching a turning point.

Professor Chen Yuyu, Director of the Institute of Economic Policy at Peking University, noted that as real estate undergoes deep adjustments, this short-term economic cycle is gradually bottoming out.

In the real estate sector, revitalizing stock assets has been a recent focus. Zhang Zheng told Huaxia Times that, according to surveys, the effects of revitalizing stock assets are not very promising. In the short term, policies mainly serve as signals to influence expectations.

Zhang Zheng has maintained a focus on research in this area. His current view emphasizes “looking to the future.” “Relevant policies are important tools at the national level to cultivate emerging housing consumption and service enterprises.” He stresses that inventory reduction should not only focus on short-term results but also consider the broader context of “a new real estate cycle or new model.” Using financial tools like market-based funds and REITs, cultivating professional operators, and shifting from “selling houses” to “selling services” are key to this transformation.

Regarding the policy focus after the Two Sessions on stabilizing the real estate market, Zhang Zheng pointed out that this direction involves both short-term expectation management and risk control, as well as medium- and long-term structural reorientation: in a stock-led phase, the contribution of real estate to macroeconomics and urban development will shift from “development—sales—expansion” to “holding—operation—services—asset management.”

In Zhang Zheng’s view, “effective inventory reduction” should not be simplified to merely reducing the number of existing properties but should be defined as a set of replicable, sustainable, and auditable institutional arrangements. The goal is to convert inefficient existing real estate into sustainable operational assets, improve service supply structures, enhance urban functions and residents’ welfare, and establish a cyclical capital exit and reinvestment mechanism in finance.

Based on these ideas, Zhang Zheng analyzed the current targets, constraints, and evaluation dimensions of inventory reduction. He pointed out that the objects of stock clearance are not limited to commercial residential inventories but also include some high-vacancy, cash-flow-unstable commercial and quasi-residential assets with mismatched formats and spaces. The main constraints are: first, the dual limitations of local governments and related entities in funds and expertise, making long-term administrative acquisitions difficult; second, the long operational cycles and slow cash flow growth of assets require matching funding terms and costs; third, social capital entry depends on predictable return-risk structures and clear exit channels, otherwise there will be chain constraints of “funds not coming in, assets poorly managed, and exits blocked.”

Therefore, he believes that evaluating “effective inventory reduction” should focus on three dimensions: first, whether assets achieve stable cash flow and value appreciation (vacancy rates, rent levels, operating costs, renovation efficiency); second, whether service and livelihood improvements are verifiable (rental housing, elderly and community services, employment and consumption stimulation); third, whether a cyclical capital mechanism is formed at the financial and fiscal levels (long-term participation, exit efficiency, leverage and risk isolation, fiscal affordability).

Multi-Dimensional Approaches to Revitalizing Stock Assets

Specifically, Zhang Zheng offered several suggestions. He advocates supporting local governments in establishing inventory clearance investment funds. Making inventory clearance a systemic arrangement depends on organizing acquisitions and operations through fund-based, professional methods to create a closed loop of “fundraising, investment, management, and exit.” He recommends supporting local governments to set up inventory clearance funds with a “parent fund + sub-funds” structure.

At the parent fund level, he suggests joint participation by local fiscal funds, state-owned enterprises, and policy financial institutions. The parent fund should undertake three responsibilities: first, strategic and asset type selection (prioritizing rental housing, elderly care facilities, and community commercial assets with high operational attributes and public service relevance); second, phased guidance (moderate concessions at the start to attract social capital and introduce market-oriented operational capabilities).

At the sub-fund level, he believes funds should be set up according to asset types and operational models, such as rental housing, elderly care, community commercial and supporting services, and reconfigurable commercial real estate. Professional institutions with investment and operational capacity should serve as fund managers (GPs), responsible for asset screening, due diligence, acquisition pricing, renovation, leasing management, business optimization, and exit planning. The core requirement for sub-funds is “operational capability-centered,” meaning evaluation of managers should focus not only on fundraising and investment ability but also on long-term operational performance, vacancy and rent management, cost control, compliance, and transparency.

To implement these fund mechanisms, policies should support “reducing transaction and holding costs, matching operational cycles, and enhancing project financing.” First, tax and transaction support should focus on lowering asset conversion and revitalization costs, avoiding high friction costs that erode operational and renovation space. Second, financing should provide ultra-long-term funds and stable interest rates, possibly through ultra-long loans with moderate interest subsidies, aligning funding terms with 10–15-year operational cycles. Risk control should involve layered structures, cash flow monitoring, asset valuation, and auditing to ensure manageability. Third, the scope and targets should be expanded appropriately: under the premise of “housing for all” and public service orientation, extending from affordable housing to market-oriented leasing, elderly care, and community commercial scenarios; and expanding from residential to certain commercial assets with location, renovation, and operational potential (including functions like “commercial-to-residential” conversions) to improve efficiency and service provision.

The sustainability of inventory clearance largely depends on social capital’s ability to form stable exit expectations and capital cycles. Therefore, Zhang Zheng also recommends improving multi-tiered REIT markets, creating a ladder from real estate funds, inter-institutional REITs, to publicly traded REITs, covering the entire asset lifecycle. Policy-wise, this requires synchronizing standards for asset compliance, cash flow and distribution rules, disclosure and auditing requirements, leverage, and risk management.

Additionally, Zhang Zheng mentioned that, in international comparisons and macro assessments, indicators related to housing services in China appear relatively low. This is partly due to conservative accounting standards for residents’ self-owned housing and virtual rent calculations, which may underestimate the added value of housing services and consumption. In the stock phase, real estate emphasizes operation and service supply, so continuous improvements in statistics, data sources, and comparability are necessary to support more consistent policy evaluation frameworks.

Finally, Zhang Zheng summarized that under new real estate development models, core enterprise competitiveness will shift from land acquisition and high turnover to operational capacity and capital circulation. This involves “three transformations”: first, product focus from “sales-oriented” to “service-oriented,” emphasizing rental, property, community commercial, and elderly care to generate stable cash flow and services; second, capability from “construction organization” to “operation organization,” focusing on rent management, renovation, business optimization, digital operations, and customer management; third, financing from “debt expansion” to “equity + REITs cycle,” achieving sustainable asset-liability structures for exit and reinvestment, and developing asset portfolio management skills. Companies need to establish governance and internal control systems aligned with operational assets, including cash flow management, disclosure, valuation, auditing, compliance, risk management, and long-term capital communication.

责任编辑：张蓓    主编：张豫宁