Core view:
The real estate industry is experiencing the biggest change in history. In particular, Evergrande’s thunder explosion makes everyone fully realize that large-scale real estate enterprises also face serious risks. Private enterprises enter the table shrinking period and the market position of central / state-owned enterprises rises sharply. In our opinion, “real estate is not fried” lies in front of the industry. The guidance of the government will make the real estate industry evolve in the direction of central / state-owned enterprises occupying the dominant market position. In order to verify whether this idea is true, we actively understand the of other industries and found that coal has also experienced such a process. Finally, the central / state-owned enterprises have the right to speak in the market, which also supports our judgment to a certain extent: the real estate industry will also reproduce this outcome, but there are some differences due to different industry attributes.
1、 We put real estate and coal benchmarking for three reasons
The real estate industry will experience changes similar to the coal industry for three reasons: first, the economic level is a weighted industry. Second, real estate and coal are closely related to people’s livelihood. Third, both have a direct impact on the financial system. The real estate industry has a high weight and far-reaching impact. It should be treated with caution and make reasonable adjustments to the industry. The painful period is inevitable. However, like the coal industry, after mergers and acquisitions, the number of enterprises will be greatly reduced, which is more conducive to the government’s supervision. If the real estate industry experiences a round of merger and reorganization, the industry concentration will also rise significantly.
2、 How to implement coal reform in coal industry — Taking Shanxi as an example
Shanxi coal reform went through three stages, and finally succeeded in 2010, with a significant reduction in negative news such as mining accidents. Since then, Henan, Shaanxi, Inner Mongolia and other provinces have successively carried out coal reform plans, and made targeted adjustments on the basis of referring to the coal reform methods in Shanxi. Henan coal reform is similar to Shanxi coal reform, but pays more attention to the implementation of coal industry policies and reasonably plans the merger area according to the distribution of mining areas. Shaanxi has adopted the shareholding merger between mines to shield the problem of “exit” of private enterprises. The Inner Mongolia model is between the Shanxi model and the Shaanxi model. It is proposed that private enterprises that meet the standards will also be able to participate in the reorganization, which is considered as the “neutralization model”.
2、 Coal is changed to scale as the benchmark, and real estate is lever oriented
The reform of the real estate industry is not achieved overnight, especially in the transformation period of the second stage. Compared with the coal industry, coal enterprises determine the retained enterprise body through the scale of annual coal output during merger and reorganization, but the real estate industry can not be judged simply from the scale. We all know that real estate is a capital intensive industry, which is most closely related to finance. Most of the enterprises that explode mines use a lot of leverage, and debt is the main risk of enterprises. Therefore, leverage will become the most important condition for whether private enterprises will survive. Many real estate enterprises still need to follow the requirements of the three red lines to realize the reduction of financial leverage. Therefore, we believe that the table reduction will be completed for the first time in 2023. However, during this period, only real estate enterprises have completed the reduction of leverage, and the structural adjustment within the industry has not been completed. Private enterprises will still survive. Only after another round of baptism, the top 100 real estate enterprises will Off balance sheet debts have been effectively improved or represent the formal completion of the industry’s table reduction. Therefore, we believe that the second stage may last for 3 to 5 years.
4、 Four issues we are concerned about under the evolution of the industry
In the process of industry evolution, we can’t help asking: first, will private real estate enterprises disappear, or which kind of enterprises are relatively better? Second, how to deal with the projects of Fortress enterprises? Third, will the profit margin of the industry change significantly? Fourth, will house prices be affected? In our opinion, private enterprises will not disappear, but the market share will shrink, the industry profit margin will still decline and return to the manufacturing industry. Finally, house prices are still regulated by marketization and administration, and will not increase or decrease significantly with the change of the industry.
