Why is real estate so far? The precise regulation of policies and the decline of sales fundamentals led to the double killing of financing cash flow and operating cash flow of some real estate enterprises, leading to a cash flow crisis. This round of regulation is more accurate than before, tightening comprehensively from the supply side, financing side, demand side, real estate enterprises and other aspects. Three red lines, two centralized bank loans, pre financing fund control and other policies have led to restrictions on the financing end funds of real estate enterprises. After the downward superposition of sales and stricter supervision of pre-sale funds, the operating cash flow was also blocked. At the same time, the project expenditure is relatively rigid, resulting in the double killing of financing cash flow and operating cash flow, large contraction pressure, weak expansion and frequent thunderstorms. Therefore, the crux of the whole industry lies in poor cash flow and weak demand side. At present, although some relaxation policies have been successively issued in terms of development loans, mortgage loans, provident fund loans and the supervision of pre-sale funds in some cities, the implementation of the policies needs time and strength. We judge that the policy is still only in the middle, and more capital and demand side policies are on the way.
The contribution of the real estate industry to local fiscal revenue has been continuously improved, and the average value of each province has reached 49.5% in 2020.
The contribution of the real estate industry to the national fiscal revenue is mainly through the real estate related taxes and the income from the transfer of state-owned land use rights. At present, the contribution of these two items has reached 36%, and the average annual increase from 2015 to 2020 is 2.67pct.
The incremental part is mainly provided by the income from the transfer of state-owned land use right. The dependence of local government revenue on the real estate industry is quite differentiated, and the provinces with the highest dependence are Zhejiang, Hunan and Jiangsu; The lowest are Ningxia, Inner Mongolia and Shanxi. From 2015 to 2020, the dependence of local fiscal revenue on the real estate industry in all provinces in China increased, with the largest increase mainly in the relatively weak economic areas in the central and western regions, such as Qinghai (29.2pct) / Hunan (26.8pct) / Shaanxi (23.7%).
The decline of real estate fundamentals will lead to the reduction of fiscal revenue, which will increase the local debt ratio, affect the refinancing ability of local urban investment, and put pressure on the interest payment of urban investment bonds. When the real estate fundamentals go down rapidly, it will bring about a significant decline in taxes and land transfer fees, which will affect the financial revenue of local governments. Through the following logical chain: “local financial revenue decreases – local debt ratio increases – urban investment bond valuation fluctuation interest margin increases – refinancing ability decreases – non-standard Default Possibility increases – interest repayment of urban investment bonds is under pressure”, It has a series of adverse effects on the urban investment company. Regions with high debt ratio tend to have large interest margin of urban investment bonds and high frequency of non-standard default.
In 2020, the income from the transfer of state-owned land use right covers the provinces with low maturity interest multiples of urban investment bonds in 2022, including Chongqing, Xinjiang, Hunan, Qinghai and Tianjin. Among them, the local finance of Tianjin, Hunan and Chongqing is highly dependent on the real estate industry. Therefore, if the scale of the land market decreases, it will increase the pressure on the repayment of the due interest of urban investment bonds in these regions.
Investment suggestion: we believe that the fundamentals are still at the bottom, but the direction of policy easing is clear, and maintain the “overweight” rating of the real estate development sector. Previously, we judged that the strength of this round of policies is still insufficient. Recently, the proportion of down payment in many places has been reduced and the four limit policy has been relaxed. It is expected that more policies are in the way, and the main direction is to improve the capital and demand side of enterprises. We believe that “the policy continues to be good – the industry fundamentals are bottomed out and are expected to rise later – the state-owned enterprises and high-quality private enterprises resume land acquisition and the gross profit margin of land acquisition is repaired” is the main logic of 2022, which will reach the resonance upward of fundamentals, industries and enterprises in the later stage. Real estate enterprises with good credit qualification, sufficient liquidity, sufficient soil reserves and high quality are the main choice. It is suggested to pay attention to real estate enterprises: A shares Poly Developments And Holdings Group Co.Ltd(600048) , Hangzhou Binjiang Real Estate Group Co.Ltd(002244) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Gemdale Corporation(600383) , China Vanke Co.Ltd(000002) , Huafa Industrial Co.Ltd.Zhuhai(600325) , Jinke Property Group Co.Ltd(000656) , Seazen Holdings Co.Ltd(601155) ; H-share China overseas development, green city China, China Resources Land, Longhu group, China Jinmao, Xuhui holding group, China Overseas Hongyang.
Risk tips: the impact of the epidemic is higher than expected, sales are lower than expected, the strength of real estate tax policy is higher than expected, and the credit default of real estate enterprises and its impact spread risk.
