Events
On March 5, 2022, Premier Li Keqiang gave a government work report at the “two sessions”, which mentioned: ① the expected GDP growth target in 2022 is about 5.5%. ② Adhere to the positioning that houses are used for living rather than speculation, explore new development models, adhere to the simultaneous development of rental and purchase, accelerate the development of long-term rental housing market, promote the construction of affordable housing, support the commercial housing market to better meet the reasonable housing needs of buyers, stabilize land prices, house prices and expectations, and promote the virtuous cycle and healthy development of the real estate industry due to urban policies. ② Prevent and resolve major risks. We will consolidate local responsibilities, departmental regulatory responsibilities and corporate responsibilities, strengthen risk early warning, prevention and control mechanisms and capacity-building, establish a financial stability guarantee fund, use market-oriented and legalized methods to resolve potential risks, and firmly hold the bottom line of no systemic risks.
Commentary
Steady growth needs the help of real estate, and the virtuous circle of the real estate industry needs the joint efforts of many parties. ① This year’s GDP growth target is set at about 5.5%, which officials say “needs hard work to achieve”. Investment in real estate development is an important support for GDP growth, and the current year-on-year growth rate of this index is in a sharp downward trend. According to the data of the central index Institute, from January to February 2022, the total transfer fee of 300 urban land auction was 252.5 billion yuan (the absolute value was the lowest in recent 10 years), with a sharp year-on-year decrease of 62%. Even taking into account the impact of the rhythm of centralized land supply, the data of 22 cities with centralized land supply in the transfer fees of 300 cities were deducted, and the transfer fees of other non centralized land supply cities also fell by 50% year-on-year from January to February this year. We believe that this is mainly because the current national sales have not stabilized. The full caliber sales amount of the top 100 real estate enterprises fell 47% year-on-year in February 2022. The cash flow pressure of most real estate enterprises has not been reduced, and the new construction has also stagnated, so they are unable to participate in the local auction. In order to avoid the great drag of real estate development investment on GDP growth, the current sales market needs to be stabilized. ② “Promoting a virtuous circle in the real estate industry” is the first formulation in the relevant statements of real estate in the government work report in the last 10 years. We believe that this means that the government has realized that the current situation of the real estate industry is still in a “bad circle”, “Downward sales & strict control of pre-sale regulatory Funds & poor financing → increased pressure on cash flow of real estate enterprises → run caused by suppliers and creditors of undue debt demanding early repayment → outbreak of negative news → steep decline in sales → real debt default”, such negative feedback phenomenon is still happening in the near future. We believe that only when sales stabilize first can most real estate enterprises have the power to start new construction and land acquisition, the local auction market can operate normally, and the investment in real estate development can stabilize and recover. In order to “promote the virtuous circle of the real estate industry”, we expect that the follow-up financial institutions, the Ministry of housing and urban rural development and other departments will gradually start to produce joint forces, and the real estate enterprises may get marginal improvement in operation, investment and financing.
Insurance delivery or one of the purposes of the financial stability guarantee fund. We believe that solving the uncompleted phenomenon of the real estate industry and the debt risk of some real estate enterprises may be one of the purposes of the “financial stability guarantee fund” mentioned in this government work report. After the Evergrande thunderstorm incident last year, the uncompleted tail and project payment disputes in the real estate industry occurred frequently. We believe that this is not conducive to social stability, but also brewing risks. At present, some large real estate enterprises are still facing debt risk. If there are continuous thunderstorms, it may cause systemic risks. In addition, according to our calculation, the completed area is expected to achieve a positive growth of 7.7% this year. With the assistance of the financial stability guarantee fund, the delivery of this year is expected to achieve greater growth. We believe that this means: ① the delivery volume of the property management company this year is guaranteed, and the certainty of the growth of the high-quality property management company in the management area this year is better than the market expectation; ② The relevant demand in the post real estate cycle is still supported, and the typical representative is glass.
The housing demand of new citizens still exists, and the demand side will make greater efforts to support the introduction of policies. At the press conference held by the State Council Information Office on March 2, 2022, Guo Shuqing, chairman of Bank Of China Limited(601988) Insurance Regulatory Commission, said: “New citizens have lived in cities and towns, but have not registered permanent residence; or they have just obtained their registered permanent residence for less than two or three years. This population is about 300 million. They are faced with the actual needs of living and working in peace and contentment, employment and entrepreneurship, renting and buying houses, children going to school, elderly pension and so on. Therefore, we want to issue a special document to put forward suggestions to banking and insurance institutions These new citizens provide services. ” We believe that new residents will form a strong support for the future housing demand, and there will be a combination of more credit and the liberalization of purchase and loan restrictions on the demand side in the future.
Investment advice
The continuous introduction of subsequent relaxation policies is a high probability event. Under the condition that “new citizens” support demand, the sales fundamentals are expected to gradually stabilize and recover. We believe that the real estate enterprises that can achieve contrarian growth in sales last year and this year will have excess returns, and are optimistic about green city China, China Construction Development International and Hangzhou Binjiang Real Estate Group Co.Ltd(002244) . In addition, we are also optimistic about the property management companies with strong operation ability, such as country garden service and Jinke service, which are probably able to survive the current round of crisis.
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
