In 2021, real estate enterprises experienced a test like samadhi fire.
The property market was booming in the first half of the year, driving the national commercial housing sales area and amount to a record high in the same period. However, under the cold water of the real estate market regulation, the sales of real estate enterprises have decreased year-on-year for five consecutive months since July, encountering the coldest “golden nine silver ten”.
Under the influence of the rapid decline of sales and the long flow of deleveraging, the disadvantages accumulated in the past development model have been revealed, and several real estate enterprises have defaulted on their debts due to the liquidity crisis.
In fact, the new financing regulations of “three red lines” introduced as early as 2020 have doomed the history of real estate enterprises relying on leverage expansion to the end.
According to Kerui statistics, the growth rate of interest bearing liabilities of 80 key real estate enterprises covered by Kerui has decreased from 37.5% in 2017 to 5.4% in 2020. The total debt reached a peak of 7087.9 billion yuan at the end of 2020. By the middle of 2021, the growth rate of interest bearing liabilities had decreased to 0.4%, while the top 10 real estate enterprises had decreased by 2.9% compared with the beginning of the period.
This means that the “three high” development model of high debt, high leverage and high turnover in the real estate industry in the past is on the verge of ending. The way of leveraging the sales scale with interest bearing liabilities, which real estate enterprises rely on, is no longer feasible, and the industry is about to enter the era of low leverage; The new development logic in the future, perhaps as Yu Liang, chairman of Vanke’s board of directors, said, “only good products and services can have a future and ensure to live, live well and live for a long time.”
difficult de industrialization, industry scale peaked and fell
Continuing the heat after the epidemic repair in 2020, the real estate market in the first half of 2021 is high, and the excitement of the real estate market is confirmed at the sales end. According to the data of Kerui Research Center, a third-party research institution, the cumulative full caliber sales of Top100 real estate enterprises reached 7006.1 billion yuan in the first half of the year, maintaining a year-on-year growth of about 38%.
However, the signal of weakening sales momentum also appeared in the middle of the year. The sales of the top 100 real estate enterprises in June increased by only 2% year-on-year. Since then, with the tightening of local regulation, the sales of real estate enterprises fell to the ice cave in July, and the monthly sales of the top 100 real estate enterprises fell by 7% year-on-year, with a negative growth for the first time. At that time, many real estate practitioners were deeply surprised by the sudden drop in market temperature, “there were suddenly fewer customers!” A front-line marketing staff lamented.
With the gradual cooling of sales, real estate enterprises will promote sales collection and ensure cash flow in an increasingly important position. The traditional discount promotion is no longer a problem, and means such as sending parking spaces, home appliances, down payment and installment are emerging one after another. Real estate enterprises have even adopted a more hidden way of discount promotion – work to house. It is understood that since September, there has been a sharp increase in the number of work arrival houses, from first tier cities to third and fourth tier cities, and the discount is also from 95% to 85% or even 70%.
In the “buy up not buy down” real estate market, discount promotion is a double-edged sword, which can bring a short increase in sales, but also change buyers’ expectations of the real estate market. Some buyers told the first financial reporter that she would not consider it when she heard about sales or intermediary sales of future houses recently.
In the second half of the year, the sales situation of real estate enterprises was worse than that in January. According to the sales data released by Kerui, the top 100 real estate enterprises achieved a full caliber sales amount of 845.03 billion yuan in November, continuing the downward trend since July, and the year-on-year decline further expanded to 39.3%. Meanwhile, the month on month performance scale changed from positive to negative.
Although a few cities boost the mood of home buyers in the form of house purchase subsidies, the repair of market confidence appears in the short-term future, and real estate enterprises generally do not have high expectations for sales performance in December.
The recession at the front end of the market has led many real estate enterprises to start contraction strategies, layoffs and salary cuts have become common, and it has also become a consensus to reduce capital expenditures such as land purchase. A relevant person of an East China real estate enterprise judged that the reduction of the scale in the future is foreseeable.
Gf Securities Co.Ltd(000776) it is also judged that the sales amount of commercial housing in 2022 is about 16.8 trillion, a year-on-year decrease of 7.4%, which is another year of negative year-on-year growth after 2008 and 2014. “Only a few central enterprises and private enterprises with extremely stable business performance are still carrying out normal business expansion, and only these enterprises still have the ability to grow in scale in 22 years.”
credit crisis, domestic and foreign financing blocked
The pressure on the sales side is not small, but what really makes real estate enterprises uncomfortable is the capital side.
Insiders of a real estate enterprise told the first financial reporter that in order to meet the regulatory requirements of the “three red lines”, most real estate enterprises increase sales this year, increase collection, reduce expenditure, and repay debts with their own funds, so as to achieve the ultimate goal of reducing leverage.
According to Kerui statistics, by the first half of 2021, the cash holdings of 80 key real estate enterprises had slightly decreased by 0.2% compared with the beginning of 2021, the first decline in recent five years; In 2017 and 2018, the growth rate of cash holdings was more than 20%. In 2019 and 2020, affected by the slowdown of industry growth, the cash growth rate decreased, but also remained at more than 10%.
In addition to the active reduction of leverage by real estate enterprises, financial institutions have also vigorously reduced housing related loans from the supply side under the influence of the new regulations on the centralized management of real estate loans in early 2021, and mortgage loans and development loans are also limited. Under the superposition effect, the growth rate of debt scale of real estate enterprises decreased significantly.
According to Kerui data, by the middle of 2021, the total interest bearing debt scale of 80 key real estate enterprises had increased by only 0.4% compared with the beginning of 2021. From 2018 to the end of 2020, this index will be 20.1%, 15.7% and 5.4% respectively.
According to the data of Northeast Securities Co.Ltd(000686) Research Report, the growth rate of interest bearing liabilities of the top 30 real estate enterprises in the industry fell to – 4.4% in the first half of 2021, which was the first negative turn since its own statistics.
Sales declined, payment collection slowed down and financing tightened, and its operating cash inflow and financing cash inflow were limited in the same period. As a result, the overall leverage level of the industry turned downward. In this process, the highly leveraged real estate enterprises with large total debt felt unprecedented capital pressure, and the liquidity crisis broke out one after another.
In the first half of the year, China Fortune Land Development Co.Ltd(600340) , Sichuan Languang Development Co.Ltd(600466) were trapped by previous business strategy, business layout and other factors, and successively announced debt default; Later, some real estate enterprises heard rumors that commercial tickets could not be cashed, such as Evergrande, Yango Group Co.Ltd(000671) , Zhongliang and the field, which increased the market’s concern about the capital pressure of real estate enterprises.
In the second half of the year, the enterprise liquidity crisis became high. For example, Evergrande delayed the interest payment of US dollar bonds at the end of September and exceeded the expected default in October. Since then, the liquidity crisis of real estate enterprises such as Xinli group, contemporary real estate, Yango Group Co.Ltd(000671) , jiazhaoye and Aoyuan has also been made public.
During this period, foreign investors had great doubts about the willingness and solvency of real estate enterprises. Overseas financing channels were gradually closed to real estate enterprises. A fixed income research report released by Ping An Securities in late December showed that the issuance of real estate dollar bonds decreased by US $15 billion year-on-year, with a significant reduction.
In October, international rating agencies also took action and successively lowered the rating of real estate enterprises, which exacerbated the pressure on corporate debt payment. Jiazhaoye and Aoyuan both said in their announcements that affected by the rating downgrade, the company was required to pay relevant debts in advance, which put great pressure on liquidity.
At present, the pattern of tight liquidity has not been eliminated, and some real estate enterprises with high capital pressure have to strengthen communication with creditors in an attempt to obtain extension understanding. For example, R & F real estate gave the repurchase and extension plan of US dollar bonds due in January 2022 in mid December. Some real estate enterprises have also taken the initiative to open debt management. Insiders of a medium-sized real estate enterprise told reporters that at present, the company is making an offer exchange for spot US dollar bonds. “This debt can also be paid back, but if it can be exchanged in full, it is best to extend the debt period and reduce the liquidity pressure.”
the “three highs” ended and the industry logic changed
Since late September, the national high-level has spoken one after another to release the signal of maintaining the stability of the real estate market.
First finance learned from insiders of a number of real estate enterprises that sales collection has indeed increased significantly recently. People from real estate enterprises living in a project in Foshan, Guangdong Province told China first finance and economics, “recently, there have been a sudden increase in mortgage items. The projects have been working overtime all night. The bank stopped working on items on December 15 of previous years. This year, it said it can do the last week.”
The positive signals of enterprise financing are also emerging, and some high-quality real estate enterprises have issued bonds. Recently, Jinke and Longhu have successively completed the issuance of bonds, and country garden plans to issue medium-term notes with a scale of 5 billion yuan, which is under “feedback”; Many companies including China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , rongchuang and Jinke have received feedback from the exchange.
But this does not mean that financial institutions are completely open to real estate. Recently, in an interview with Xinhua news agency, the relevant person in charge of the Ministry of housing and urban rural development said that the real estate development and business model of “high debt, high leverage and high turnover” formed in the past was unsustainable, and mentioned that we should adhere to the positioning of “no speculation in housing”.
In the view of Guotai Junan Securities Co.Ltd(601211) analyst Xie Haoyu, the “three highs” of the real estate industry are mentioned again, and it is emphasized that real estate is not fried, and the de financialization of real estate enterprises is still a long-term road. In the short term, meeting the reasonable purchase demand is also emphasizing the deregulation of the demand side, and the smooth transition will be the main theme.
When the development logic of the real estate industry changes and it is no longer possible to support high growth through high liabilities, the development business is close to the manufacturing industry, and the comprehensive capabilities of the enterprise such as products, finance and operation become the key.
China International Capital Corporation Limited(601995) believes that in the future, real estate enterprises need to focus on product power, cost management and property service, support flexible sales strategies, realize early opening, early selling out and early payment collection after land acquisition, that is, efficient “supply, marketing and inventory” management and capital turnover efficiency, earn reasonable profit rate, and finally obtain reasonable return on assets and roe.
At the beginning of 2021, Yu Liang, chairman of Vanke’s board of directors, mentioned that real estate has gone through land dividends and financial dividends, and now it has entered the management dividend. “Only good products and services can have a future and ensure to live, live well and live long.”
However, focusing on the present, on the premise of blocked financing, slower sales and less land acquisition, for many real estate enterprises operating through the high leverage mode, it may also become a new direction to cooperate with state-owned enterprises while continuously optimizing the balance sheet, paying attention to product power, improving operation efficiency and seeking benefits from management in the future.
Xu Chao, an analyst in the securities and real estate industry, pointed out that in the last two rounds of centralized land supply, urban investment took land on a large scale, “Urban investment companies have many advantages in their own cities. For example, local governments can reduce land costs and reduce capital pressure by returning land transfer fees. If the trading ability is insufficient, they can choose to cooperate with asset light agent construction companies.”
“Some of these enterprises (urban investment companies, etc.) have insufficient development capacity, but they have capital and cost advantages and cheap land. Private enterprises can use their own development advantages to cooperate with them,” said a person from an East China real estate enterprise. “For the government, the risk is controllable; for private enterprises, the leverage can be reduced through cooperation, and their identity is like a construction agent.”
(First Finance)
