China's urbanization has gradually shifted from high-speed development to high-quality development, in which urban renewal will play an important role. The scope of urban renewal includes the transformation of "three districts and one village", that is, the transformation of old communities, old factories, old blocks and villages in the city, which is much larger than the transformation of single old communities in the past. From the perspective of investment scale, the strict restriction on the proportion of demolition and reconstruction in urban renewal does not mean that the investment scale is limited. The core of urban renewal focuses on quality improvement. Fields such as smart city and ecological city will be the key direction of urban renewal in the future. The investment idea will shift from large area to high quality, and the driven investment scale is also considerable. In terms of the scope of urban renewal, although only 21 cities are selected as the pilot area of urban renewal in the official document, urban renewal is steadily promoted throughout the country. From the start-up time, the 14th five year plan has set quantitative indicators for urban renewal, which means that urban renewal has been started in an orderly manner. Urban renewal is a strong variable and fast variable of real estate investment. It is expected to play a driving role in real estate investment in 2022; From the past investment scale and current investment planning estimates, it is estimated that the investment scale of urban renewal during the 14th Five Year Plan period will be more than 10-12 trillion, and the average annual investment scale during the period will be more than 2-2.5 trillion. If it is estimated that the proportion of real estate and infrastructure investment is 70% and 30% respectively, it will contribute about 7% - 8% to the growth rate of real estate investment in the whole year. We expect that the real estate investment in 2022 will exceed the expectation and maintain the annual growth rate of real estate investment of 5.4%. The short-term equity assets are expected to grow steadily, and the performance of relevant sectors will continue; In terms of interest rate bonds, it is expected that the yield of 10-year Treasury bonds will further rise to 3% in April.
Urbanization has gradually shifted from high-speed development to high-quality development, improving the quality of life and playing an important role in urban renewal
Xi Jinping General Secretary published several major issues of the national medium and long term economic and social development strategy (hereinafter referred to as the strategy) in Qiushi in October 2020, which made important plans for China's future urbanization strategy:
First, urbanization will continue to develop, but it will gradually shift from "high-speed development" to "high-quality development". At present, China's urbanization rate is 64.7%, and it will enter the range of 65% - 70% during the 14th Five Year Plan period. From the experience of developed countries, the urbanization rate will slow down significantly after reaching 70%; Since 2015, China's urbanization rate has gradually decreased. It is expected that in the future, urbanization will gradually shift from "high-speed development" to "high-quality development". The focus of high-quality development is to focus on people, make cities healthier, safer and more livable, and become a space for people's high-quality life.
Second, after urbanization turns to "high-quality development", the population density needs to be reasonably controlled. The general secretary pointed out in the strategy
"Cities across the country should reasonably control the population density according to the actual situation, and the average population density of large cities should have control standards". For example, Beijing proposed to reduce the population density in the Beijing urban master plan (20162035). By 2020, the resident population density in the centralized construction area of the central urban area will be reduced from the current 14000 people / square kilometer to about 12000 people / square kilometer, and will be controlled within 12000 people / square kilometer by 2035.
The reasonable control of population density means that in the future, "incremental development" of the real estate market (especially the first tier cities) will gradually enter the development bottleneck (the rate of density increase slows down) and turn to "stock transformation".
Under the guidance of the future urbanization strategy, we believe that urban renewal will be an important starting point for the transformation of real estate stock and improving the quality of life. In terms of specific direction, the strategy points out that there is huge demand and development space in the transformation of old cities and old communities, the construction of underground pipe networks and parking lots, childcare, elderly care, housekeeping, education, medical services and so on.
In April 2021, the connotation of urban renewal was further clarified. The national development and Reform Commission issued the key tasks for the development of new urbanization and urban-rural integration in 2021. The document made it clear that the main content of urban renewal is to "promote the transformation of" three districts and one village "with old communities, old factories, old blocks and villages in the city in the old urban area".
Urban renewal is the key content of the 14th five year plan. The coverage of "three districts and one village" is much larger than the transformation of old communities
We pointed out in the previous report "building first and then breaking through, manufacturing breakthrough" that the policy investment represented by urban renewal and affordable housing investment will be an important driving factor to drive the real estate investment in 2022 beyond expectations. At present, the market has fully expected the construction of affordable rental housing, but there is still insufficient understanding of the potential investment scale of urban renewal. From the perspective of planning objectives, the 14th five year plan sets quantitative indicators for urban renewal in the five-year plan for the first time, requiring "to complete the transformation of 219000 old urban communities built before the end of 2000, basically complete the transformation of old factories in big cities, transform a number of large old blocks, and transform a number of urban villages according to local conditions". Combined with the definition of the national development and Reform Commission, it is not difficult to find that the coverage and driven investment scale of urban renewal are much larger than the single old community transformation in the past.
Adhere to the "retention, replacement and demolition" and strictly control the large-scale demolition and construction, but pay attention to improving the quality of the city, and the actual investment scale can still be expected
The current urban renewal adheres to the "retention, replacement and demolition" as the center, and strictly controls the large-scale demolition and construction. In 2021, the Ministry of housing and urban rural development officially issued the notice on preventing large-scale demolition and construction in the implementation of urban renewal action (hereinafter referred to as the notice) and put forward four key guiding principles: first, strictly control large-scale demolition. The notice requires that the demolished building area of the old urban renewal unit (area) or project shall not be greater than 20% of the current total building area. The second is to strictly control large-scale additional construction. The notice requires that the demolition and construction ratio in the updated unit (area) or project should not be greater than 2 (that is, the proportion of new construction / demolition should not exceed 2, for example, the area of the original project should be 100 square meters, the demolition area should be 20 square meters, and the maximum area of new construction should not exceed 40 square meters). The third is to strictly control large-scale relocation. The local and nearby resettlement rate of residents of the renewal project in the notice requirements should not be less than 50%. Fourth, ensure stable supply and demand in the housing rental market. The notice requires small-scale and short-term demolition of urban villages and other urban contiguous old areas, resulting in an imbalance between supply and demand in the housing rental market.
From the perspective of the notice itself, the proportion of urban renewal, demolition, reconstruction and expansion has been strictly limited, and large-scale construction cannot be carried out. We believe that this spirit is consistent with the general secretary's spirit of controlling the average population density of big cities and focusing on people in the strategy. However, the restricted scale of demolition and reconstruction does not mean that the investment scale is limited. The core of urban renewal is to improve the quality. Different from the traditional transformation methods such as adding elevators and transforming facades, fields such as smart city and ecological city will be the key direction of urban renewal in the future. The investment idea will shift from large area to high quality, and the driven investment scale is also considerable (the specific investment scale will be discussed in the future series of reports). The above direction has been mentioned in the government work reports of many provinces and cities. Smart city: for example, Shandong Province proposed to "accelerate urban renewal, pay more attention to improving the level of smart, green, balanced and two-way urban development, and build 1200 smart communities". Henan province put forward: "using digital technology to empower social governance, build digital twin cities and smart communities, smooth urban transportation and improve the level of intelligence." In terms of eco city, the work report of Fujian provincial government puts forward: "implement the ecological continuous project and systematically build the coastal and mountainous ecological continuous belt"; Shandong Province proposed: "fully release the value of urban green resources and build an ecological space with beautiful mountains and rivers".
Although only 21 cities have been selected as pilot areas for urban renewal in the official document, they have been steadily promoted throughout the country
The Ministry of housing and urban rural development issued the notice on carrying out the first batch of urban renewal pilot work in November 2021, and selected 21 cities to carry out urban renewal pilot work. However, we believe that the selection intention of the pilot cities is to take typical cities as the starting point to explore the operation system of urban renewal, which does not represent that urban renewal is only carried out in 21 cities. For example, Guangdong Province is not a pilot area, but it is actually in the leading state in the field of urban renewal in China; Shanghai is not a pilot area, but it also promotes and sets up a special urban renewal fund. In addition, according to the statistics of the central index, since 2021, more than 30 provinces and cities in China have issued policies related to urban renewal, which is much larger than the pilot cities.
In 2022, real estate investment focuses on urban renewal as a representative policy dividend under the background of simultaneous development of policy investment and rent and purchase
The 14th five year plan has set quantitative indicators for urban renewal, which means that urban renewal has been started in an orderly manner. Urban renewal is a strong variable and fast variable of real estate investment. It is expected to play a driving role in real estate investment in 2022. From the past investment scale (by the end of 2021, 411 cities across the country have implemented 23000 urban renewal projects, with a total investment of 5.3 trillion yuan; the systematic proposal time of the concept of urban renewal at the national level is 2019) and the current investment planning estimation (at present, only 2 provinces and 6 cities have announced that the investment plan scale during the 14th Five Year Plan period has been nearly 5 trillion yuan (including the estimated value)), it is estimated that the investment scale during the 14th Five Year Plan period of urban renewal will be more than 10-12 trillion yuan, During this period, the average annual investment scale is more than 2-2.5 trillion (please refer to the previous report "why urban renewal deserves special attention", and we will further discuss the investment scale in the subsequent series of reports) Infrastructure investment accounts for 70% and 30% (real estate and infrastructure investment in urban renewal and old transformation projects in Shenzhen will account for about 64% in 2021. Considering that urban renewal may further expand to third and fourth tier cities in the future, real estate investment may be formed by demolition and other means, and the proportion of real estate infrastructure investment may become 73% in the future), the contribution to the growth rate of real estate investment in the whole year is about 7% - 8%. In this context, we continue to remind real estate investment to focus on two directions: first, policy investment represented by urban renewal. We believe that Shenzhen New Land Tool Planning &Architectural Design Co.Ltd(300778) renewal areas other than the reconstruction of old factories and old urban areas will drive real estate investment beyond the expected period in the future. The second is the policy dividend under the background of "simultaneous development of rent and purchase". In terms of "rent", the long-term rental housing system dominated by indemnificatory rental housing will become an important supplement to the existing housing system. It is expected to leverage the real estate investment of Hpf Co.Ltd(300350) billion yuan in 2022, contributing about 1.4% - 1.7% to the growth rate of real estate investment. In terms of "purchase", it is expected that in 2022, the purchase and loan restriction policy will be gradually relaxed in the field of commercial housing, especially in the first and second tier cities, so as to meet the needs of the net inflow of population to urban housing; Reasonable demand for improved housing mortgage will also be effectively met. The relaxation of sales side policies will stimulate demand and help stabilize real estate investment. This trend has been gradually realized in 2022.
We expect that real estate investment will exceed expectations and maintain the judgment that the annual growth rate of real estate investment will be 5.4%. Under this background, equity assets are expected to grow steadily, and the performance of relevant sectors will continue; In terms of interest rate bonds, it is expected that the yield of 10-year Treasury bonds will further rise to 3% in April.
Risk tip: the investment in urban renewal is less than expected.
