Matters:
On March 16, vice premier Liu he presided over the meeting of the financial stability and Development Committee of the State Council to study the current economic situation and capital market problems, and mentioned that “for real estate enterprises, we should timely study and put forward effective countermeasures to prevent and resolve risks, and put forward supporting measures for transformation to a new development model”.
On March 16, Comrade Yi Gang presided over a meeting of the people’s Bank of China, emphasizing “pursuing progress while maintaining stability, preventing and resolving risks in the real estate market”.
On March 16, chairman Guo Shuqing presided over a special meeting of the China Banking and Insurance Regulatory Commission, emphasizing the need to adhere to the principle of not speculation in real estate, continuously improve the long-term mechanism of “stabilizing land prices, stabilizing house prices and stabilizing expectations”, actively promote the transformation of the development mode of the real estate industry, encourage institutions to carry out merger and acquisition of loans in a stable and orderly manner, focus on supporting high-quality real estate enterprises to merge and acquire high-quality projects of difficult real estate enterprises, and promote the virtuous circle and healthy development of the real estate industry. On the evening of March 16, according to Xinhua news agency, the Ministry of Finance said that it did not have the conditions to expand the pilot cities of real estate tax reform this year.
Ping An View:
“Stabilizing the economy” requires “stabilizing the real estate”, and the real estate risk resolution scheme needs to be improved. The 2022 government work report pointed out that “in the face of downward pressure, steady growth should be put in a more prominent position”. As a pillar industry, the added value of real estate industry in 2021 will drive the overall economic growth by about 0.38 percentage points, with a contribution rate of 4.64% to GDP growth. Real estate investment accounts for 27% of fixed asset investment. Its stable operation is an important support for economic growth. However, from January to February 2022, it is difficult to be optimistic about real estate sales, investment and capital. The liquidity risk of the industry continues to ferment, and the credit risk of some real estate enterprises has been exposed again recently. The regulation stated that “with regard to real estate enterprises, we should timely study and put forward effective risk prevention and resolution solutions, and put forward supporting measures for transformation to a new development model”, strengthen the confidence in timely and effective resolution of industry risks, and it is expected that more stable real estate policies will be issued in the future.
The deregulation of short-term policies is both necessary and reasonable, and is expected to work together at both ends of supply and demand: Despite the central government’s proposal of stable growth, the contradiction between local government revenue and expenditure has become prominent under the cooling of the land market and the impact of the epidemic. At the same time, the sales of the top 100 real estate enterprises decreased by 43% year-on-year in February, and the medium and long-term loans of residents were negative for the first time since statistics. The superposition of 2022h1 is the peak of real estate enterprises’ debt repayment. All market participants urgently need to break the situation with the, Resolve systemic risks. We believe that the core of risk resolution lies in opening up the endogenous operating cash flow dominated by sales collection, which is the key to boost the confidence of financial institutions and home buyers. It is expected that the future policies may be in the multi-dimensional “urban implementation” such as reducing mortgage interest rates, relaxing purchase and loan restrictions, loosening pre-sale supervision funds and so on. In addition, the Ministry of Finance said that it does not have the conditions to expand the pilot cities of real estate tax reform this year, which meets the requirements of the financial stability and Development Commission to “actively introduce policies conducive to the market and carefully introduce contractive policies”, and also helps to repair the confidence of home buyers and stabilize the market expectation.
The medium and long-term competition pattern is optimized, and the industry expectation tends to be stable: the radical “high leverage” real estate enterprises in this round of industry crisis are unsustainable, and they will inevitably face scale shrinkage or withdrawal from the market in the future. High quality real estate enterprises also shrink their investment out of “fixed investment based on sales”. Local governments make profits under the local financial pressure or in the local auction market, such as the recent relaxation of price limits in Dongguan, Chengdu and other places. The land market may enter the buyer’s market, and the implied gross profit margin of high-quality real estate enterprises is expected to improve. In addition, the willingness of insurance and high-pressure real estate enterprises to transfer assets is quite positive, superimposed with the credit support of financial institutions, creating good acquisition opportunities for high-quality real estate enterprises. In the medium and long term, the industry resources are gradually inclined to high-quality and high credit real estate enterprises, and its market share is expected to continue to expand. At the same time, the market expectations such as policies and local auction are stable, which is conducive to the virtuous circle of the industry and the stable and healthy development of the market.
Investment suggestion: at present, under the background of steady growth, local finance and property market transactions are under pressure. In February, the medium and long-term loans of residents were negative for the first time since statistics. The credit risk of many real estate enterprises broke out again. It is urgent to resolve industry risks and stabilize market expectations. The follow-up policies are expected to work together at both ends of supply and demand to drive the continuous repair of sector valuation. In the medium and long term, with the withdrawal or contraction of some real estate enterprises in the painful period of this round, the overall pattern of the industry is expected to be optimized, and the market share and profitability of brand real estate enterprises with financing and control advantages are expected to be improved. The development sector pays attention to the leading high credit real estate enterprises Poly Developments And Holdings Group Co.Ltd(600048) , Gemdale Corporation(600383) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , China Vanke Co.Ltd(000002) and other high credit real estate enterprises with strong short-term pressure resistance and prominent medium and long-term competitive advantages, and moderately pays attention to the elastic second-line targets such as Hangzhou Binjiang Real Estate Group Co.Ltd(002244) , Seazen Holdings Co.Ltd(601155) . In terms of diversified business, the current valuation of the property management sector has reached an all-time low and the cost performance is prominent. With the continuous deregulation of policies and the improvement of the capital side of development enterprises, it is also expected to bring high-quality property management valuation repair. It is optimistic about property management leaders with outstanding comprehensive strength, such as country garden service, poly property, xinchengyue service, Jinke service, and commercial operators with strong asset light output strength, such as Xingsheng business.
Risk tips: 1) the short-term fluctuation of the real estate industry exceeds the expected risk; 2) The fermentation and chain reaction of individual real estate enterprises’ liquidity problems exceed the expected risks; 3) The timeliness of policy improvement is lower than the expected risk.
