Core view
Q1: what do you think of the introduction of national supervision measures for pre-sale funds of commercial housing?
A1: in the report "Anhui development and Reform Commission guided the reduction of down payment, with obvious positive signals on the demand side" issued on January 26, we pointed out that in view of the recent frequent disputes over project funds, it is necessary to rationalize the supervision and adjustment of pre-sale funds. At present, there are great differences in the supervision proportion and strict implementation of pre-sale funds across the country. Giving unified instructions in this regard is more conducive to short-term stability maintenance. On February 10, 2022, the financial Associated Press reported that the introduction of national measures for the supervision of pre-sale funds of commercial housing just confirmed our previous judgment. We believe that this adjustment is substantially good for the real estate industry and the most effective way to alleviate the cash flow pressure of many real estate enterprises in the short term. From the perspective of beneficiaries, this adjustment has the greatest improvement for some private real estate enterprises that have not yet experienced a thunderstorm but have extremely tight cash flow. We believe that the focus of the follow-up market will switch from steady state-owned enterprises to highly flexible private enterprises. According to our research, recently, some provinces have orally relaxed point-to-point in the implementation of pre-sale fund supervision, no longer oversupervision as before, and began to allow some enterprises to withdraw supervision funds to pay project funds according to the construction progress. With the introduction of the national measures for the supervision of pre-sale funds of commercial housing, we expect that more cities will follow up at the implementation level and adjust the supervision methods.
Q2: what do you think of the sales situation of the real estate industry?
The overall sales volume of 100 real estate enterprises remained stable in January and February 2022, with a year-on-year increase of 41%. Sales have differentiated between cities with different energy levels. During the Spring Festival this year, the sales of the first and second tier cities became positive year-on-year, while the third tier cities maintained a sharp decline. We believe that this is mainly due to the relative shortage of inventory in the first and second tier cities. In some cities, the reduction of mortgage interest rate last December led to the recovery of demand and the acceleration of mortgage issuance, so the sales improved. At present, the purchase confidence in the third tier cities is still insufficient, which we believe is mainly because the current policy strength is not enough to reverse the confidence. We expect that substantial improvement policies on the demand side will be introduced one after another, such as reducing mortgage interest rates, liberalizing purchase and loan restrictions, and reducing the proportion of down payment.
Q3: why does the effect of improving the policy seem not obvious?
A3: because the resultant force has not yet formed. See the text for details.
Q4: how to see the follow-up trend of real estate bonds?
A4: the introduction of the national supervision opinions on pre-sale funds is directly beneficial to the improvement of short-term cash flow of real estate enterprises, and there may be a wave of rebound opportunities for real estate bonds. However, to fundamentally solve the debt dilemma, sales still need to pick up. If the subsequent demand side policies are not implemented fast enough or with insufficient strength, we believe that the debt default risk of real estate enterprises has not been relieved.
Q5: how can private real estate companies break the situation?
A5: ① private enterprises with relatively good cash flow status operate normally. ② Private enterprises with tight cash flow but still operational ability can survive the current round of crisis by selling assets until sales turn warm, or seek the way to turn state-owned enterprises into mixed ownership enterprises. We think the latter may be a faster way to achieve results. ③ Cash flow has been very tight, even debt default, and private enterprises that gradually lose their operating capacity may become a small company after continuously selling assets, or eventually go bankrupt and restructure.
Q6: to what extent will the real estate industry "advance the country and retreat the people"?
A6: private enterprises will not "die out", and the survival probability and quantity will exceed market expectations. Mainly because: first, the sales amount of only 40 listed private real estate enterprises accounted for 35% of the country in 2020. Second, state-owned real estate developers are limited by leverage and operational capacity and cannot fill the full share of private enterprises.
Q7: what is the impact on the downstream industrial chain?
A7: ① some downstream companies may underestimate the amount of accounts receivable of real estate enterprise customers other than China Evergrande. ② Downstream companies in the industrial chain that are closely related to real estate sales may still be under pressure in terms of short-term income. ③ Based on the goal of steady growth, it is expected that the infrastructure will have a significant force in the first quarter, superimposed with the adjustment of pre-sale regulatory funds, and the demand for bulk commodities is relatively supported.
Investment advice
We believe that the focus of market attention will gradually switch from stable state-owned enterprises to highly flexible private enterprises, such as rongchuang China. In addition, we are still optimistic about the real estate enterprises with contrarian sales growth in 2021-22 represented by green city China. In the property sector, we are optimistic about high-quality private property management companies with management scale or density and better development in value-added services, such as country garden services, Jinke services and construction new life.
Risk tips
The introduction of real estate improvement policies was slower than expected; The implementation effect of real estate improvement policies is less than expected
