Events
On April 29, 2022, the Political Bureau of the CPC Central Committee made a statement on real estate: we should effectively control key risks, hold the bottom line of no systemic risks, adhere to the positioning that houses are used for living, not for speculation, support all localities to improve real estate policies, support rigid and improved housing demand, optimize the supervision of commercial housing pre-sale funds, and promote the steady and healthy development of the real estate market.
Comments
The meeting mentioned that “effectively control key risks and hold the bottom line of no systemic risks”. In essence, it is to prevent cross industry risks that may be caused by excessive decline of industry fundamentals and continuous deterioration of real estate enterprise funds while controlling key risks in the real estate industry. At present, the fundamentals of the industry and the funds of real estate enterprises are facing severe tests: on the one hand, the decline in real estate investment and sales has intensified and has not yet bottomed out; On the other hand, the early-stage credit support was not in place, superimposed on the centralized maturity of debt, and the capital chain of real estate enterprises continued to be tense. If the severe situation continues to deteriorate, there may be adverse chain reactions to the financial system and the upstream and downstream industrial chain of real estate.
Since March, the high-level real estate related setting tone of “stable and loose” has been clear, and continued to release positive signals. This Politburo meeting also focused on “supporting all localities to improve real estate policies and support rigid and improved housing needs based on local conditions”. We believe that the real estate industry has entered a period of in-depth adjustment. In March, the sales area of commercial housing across the country fell sharply by 23.2% year-on-year. In April, the prosperity of the real estate market continued to be depressed. Some urban fundamentals are facing severe downward pressure, and policies may be actively liberalized. The adjustment period will run through the whole Q2. Due to the main line of urban implementation policies, the overall optimization of real estate regulation and control policies may show the following three characteristics: 1) the pace of policy implementation will be further accelerated: the local “stabilizing the real estate market” policy will be implemented more frequently in May. 2) The Policy extends to purchase restriction, loan restriction, sales restriction, loose price restriction and other directions, and the optimization and adjustment efforts are strengthened, and the effectiveness is gradually enhanced. We once mentioned in the report “exploring the best path of this round of real estate regulation and relaxation and the survival law of current real estate enterprises from the historical resumption”, that the effectiveness of the demand side policy can be summarized from strong to weak as follows: comprehensive purchase restriction relaxation → loan restriction relaxation (reducing the down payment ratio → reducing the real estate loan interest rate) → local purchase restriction relaxation → increasing the price limit space → sales restriction relaxation → purchase incentive policies such as talents and population → reducing transaction taxes and fees, etc. The first is the relaxation of loan restrictions. On April 18, the central bank proposed to “implement differentiated housing credit policies according to urban policies, reasonably determine the minimum down payment ratio and minimum loan interest rate requirements of commercial individual housing loans within its jurisdiction, and better meet the reasonable housing needs of home buyers”. It is expected that more cities will reduce the down payment ratio of commercial loans and housing loan interest rate, and optimize the standard of “house and loan recognition”. According to our sorting, more than 20 cities, including Nanning, Fuzhou, Lanzhou, Heze and Ganzhou, have reduced the proportion of down payment, and cities with downward mortgage interest rates have been expanding to high-level cities such as Guangzhou and Nanjing Shanghai Lingang Holdings Co.Ltd(600848) , Nanjing, Suzhou, Ningbo, Lanzhou, Wuxi, Zhengzhou, Fuzhou, Nanchang and other places optimize the purchase restrictions, Tianjin plans to stop the sales of limited price commercial houses, Harbin and Qingdao Jimo optimize the sales restrictions, etc. 3) The city expands to the first and second tier cities. The relaxation policy of the property market has spread from third and fourth tier cities to weak second tier cities, and from weak second tier cities to strong second tier cities such as Nanjing and Suzhou. We need to relax the policy of the second line and even the third line, and we can see whether we can further relax the policy of the second line and the third line according to the overall market, and then we can see whether we can relax the policy of the second line and the third line, and then we can see whether we can further relax the policy of the second line and the third line according to the overall market. We believe that the follow-up can focus on whether the four strong second tier cities of Chengdu, Hangzhou, Wuhan and Xiamen have relevant policies, which will have a clearer guiding significance.
In the future, the marginal relaxation of pre-sale funds in some cities is expected to be effectively implemented at the implementation level. Although as early as the beginning of February, the financial Associated Press and other media reported that the national measures for the supervision and management of pre-sale funds of commercial housing had been issued, which was intended to correct some cities with excessive tightening of pre-sale funds supervision and alleviate the financial pressure of real estate enterprises to a certain extent, from the perspective of the landing effect, the easing of pre-sale funds and the actual implementation of financial institutions were relatively weak. This meeting once again mentioned “optimizing the supervision of commercial housing pre-sale funds”, which reflects the high attention of the central government to the supervision of pre-sale funds. We believe that the possible improvement directions of pre-sale fund supervision in the future are as follows: 1) reasonably allow some high credit real estate enterprises to unfreeze some regulatory funds with bank guarantee; 2) No longer “one size fits all”, but the supervision of echelon pre-sale is relaxed. For real estate enterprises with high credit rating, the retention proportion of pre-sale funds is appropriately reduced; 3) Further liberalize the supervision proportion and time point of pre-sale funds.
Investment advice
At the meeting of the Political Bureau of the CPC Central Committee, the high-level set the tone, and the regulation path of real estate policy is clearer and clearer. We believe that the follow-up “implementation of policies for cities”, “implementation of policies for time” and “implementation of policies for houses” will accelerate the implementation. While fulfilling the beta market, market confidence and the repair of both ends of industry supply and demand can be expected. We expect that the sales probability will bottom out at the end of Q2, stabilize and recover, and the investment may improve in Q3. We suggest paying attention to four main lines: 1) the leading real estate enterprises of central state-owned enterprises with nationwide layout have been boosted by valuation in the last stage, but will still enjoy the rising space brought by the beta Market: Poly Developments And Holdings Group Co.Ltd(600048) , Gemdale Corporation(600383) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Longhu group and China Resources Land; 2) Regional leading central state-owned enterprises and high-quality private enterprises, but the quality of cash flow and financial report is good: China Construction Development International, Yuexiu real estate, Midea real estate, Hangzhou Binjiang Real Estate Group Co.Ltd(002244) ; 3) After the policy becomes clearer, we can focus on the target of elastic reversal: Xuhui holding group, Seazen Holdings Co.Ltd(601155) , Jinke Property Group Co.Ltd(000656) , country garden; 4) At present, the real estate post cycle property sector with strong income determination and accelerated concentration, as well as the recent credit risk mitigation of related real estate enterprises and elastic reversal: Country Garden service, Xuhui Yongsheng service, poly property, Zhonghai property and xinchengyue service.
Risk tips
Real estate regulation continues to upgrade; Sales fell more than expected; Financing continued to tighten.
