Introduction to this report:
Looking back on the real estate cycle since 2009, according to the different policy combinations for real estate enterprises and residents, it can be seen that the asset liability ratio of real estate enterprises rather than residents is the core of the sector’s excess return performance.
Summary:
Under the framework of real estate finance, the impact of real estate enterprises on the industry is greater than that of residents, and the impact of financing is greater than that of administrative regulation. The demarcation point is that real estate is not fried in 2017. Taking 2017 as the boundary, the real estate regulation and control policy has transitioned from “lenient housing prices and tight residents” to the current combination of “tight housing prices and lenient residents”.
20092017 is the expansion period of real estate enterprises, which is reflected in the gradual opening of financing channels for real estate enterprises, the increase of leverage and the expansion of asset scale. The resident side focuses on the loose and tight opening regulation of the “four restrictions” policy. After setting the tone of “no speculation in housing and housing” in 2017, the real estate enterprises entered the deleveraging and table reduction period, from the restriction of land financing under the new asset management regulations to the restriction of development financing under the “three red lines”, and then to the restriction of sales financing under the supervision of pre-sale funds. The corresponding residential side, from talent introduction to house purchase subsidies and other policies, has gradually liberalized the restrictions of residents.
Different from the market perception, the credit easing at the end of real estate enterprises is the source of the sector’s excess return. 2017 is the dividing point. Before that, it was the stage of real estate enterprises plus leverage expansion. The real estate sector continued to have relative returns, with an average annual compound rate of return of 15.9%, while the Shanghai composite index was 7.4%. Due to the land derived credit mechanism, the opening of financing channels for real estate enterprises in the stage of broadening real estate enterprises has brought about the continuous upward movement of the real estate market and land market. From 2008 to 2017, no matter whether there was regulation at other levels, a new financing channel was added at the financing end of real estate enterprises almost every year, and financing channels such as development loans, trusts, refinancing, ABS, corporate bonds and overseas bonds were successively opened. The industry asset liability ratio rose all the way from 62.4% in early 2009 to 78.5% in 2017, and the average annual compound growth rate of debt scale was 32.9%. At this stage, liabilities continued to expand. Even with inventory accumulation, policy repression and demand concerns, the sector still achieved sustained excess returns. The best stock price performance is the second and third tier real estate enterprises with greater flexibility and stronger growth, representing the company Yango Group Co.Ltd(000671) , while the performance of leading real estate enterprises is relatively weak.
After 2017, real estate enterprises entered the stage of deleveraging and table contraction. Even if the residents’ policy entered a continuous easing cycle, the real estate sector still no longer has relative returns. By 2021, the average annual compound rate of return was – 9.0%, while the Shanghai composite index was 3.8%. In the reduction stage, due to the tightening of financing, the cooling of the land market and the provision of inventory falling price reserves by real estate enterprises, the profit margin was damaged, the profitability weakened and the operating risk increased.
The average annual compound growth rate of the debt scale of real estate enterprises fell back to 20.9%. The industry’s asset liability ratio began to decline after reaching a peak of 79.8% in 2018 and reached 79.0% in Q3 in 2021. The gross profit margin and net profit margin decreased from 29.8% and 12.4% in 2017 to 19.3% and 4.8% in Q3 in 2021. With the increase of the financing policies of real estate enterprises, the new regulations of asset management in 2018, the three red lines in 2020, and the supervision of pre-sale funds in 2021, real estate enterprises exploded on a large scale, and the income of the real estate sector was negative at this stage. At the individual stock level, the leading real estate enterprises represented by Zhaobao Wanjin showed stronger resistance to decline.
It is the pessimism of the current state-owned enterprises to improve the excess asset distribution and the marginal income of state-owned enterprises in 2021. The risk appetite of financial institutions is still low, and the credit redistribution is still good for the second tier central state-owned enterprises, benefiting Cccg Real Estate Corporation Limited(000736) , Xiamen C&D Inc(600153) . In addition, we recommend Financial Street Holdings Co.Ltd(000402) , which is a high-quality holding property company with core assets and stable cash flow under the shortage of assets, and the target beneficiaries are China-Singapore Suzhou Industrial Park Development Group Co.Ltd(601512) , China World Trade Center Co.Ltd(600007) , Shanghai Lujiazui Finance & Trade Zone Development Co.Ltd(600663) .
Risk tip: restart the land finance mode, and the downward speed of industry demand exceeded expectations.
