On May 20, 2022, the latest published loan market quoted interest rate (LPR) results showed that the one-year LPR was 3.7%, unchanged from the previous time; Varieties with a maturity of more than 5 years reported 4.45%, a decrease of 15bp compared with the last time.
Comments
Asymmetric interest rate cuts reflect the monetary policy to further increase support for key areas such as real estate. The 5-year LPR was lowered by 15bp to 4.45% this month, and it was lowered again after three months, which also hit the largest decline in history, exceeding market expectations and the only 5-year variety to be lowered separately so far. The structural interest rate cut reflects that in the current critical period of stable growth, the credit expansion is strengthened, the support for key areas and weak links is strengthened, and the importance of stabilizing real estate for economic growth is increased.
We believe that the weakening of financial data and the continued downturn of real estate sales are the main reasons for the 5-year LPR reduction. 1) In April, the credit and social finance data fell sharply, which means that the central bank is expected to increase its credit easing efforts. At present, the urgency of reducing enterprise financing costs and resident loan interest rates has further increased. 2) After a series of internal policy adjustments, the fundamentals of the real estate industry are still under pressure. Under the influence of the sluggish sales boom in April and the repeated epidemic, the residential sales area decreased sharply by 42.4% year-on-year, the largest decline in a single month since 2007, and the boost of real estate fundamentals is imminent.
We believe that the five-year LPR reduction will drive the mortgage interest rate down, and play a more direct transmission effect on the reduction of house purchase costs and the activation of reasonable housing consumption demand. 1) The central bank has successively lowered the lower limit of the first mortgage interest rate and the benchmark of mortgage interest rate, and the subsequent mortgage interest rates will further decline. In combination with the central bank's recent reduction of the lower limit of the first mortgage interest rate, the lower limit of the first ordinary self occupied mortgage interest rate was reduced to 4.25% (see our previous report "the central bank's reduction of the lower limit of mortgage interest rate releases a strong signal, and it is expected that the policies of subsequent industries at the financial level will be intensively introduced"). 2) Reduction of house purchase cost: Taking the first house loan of 1 million yuan for 30 years as an example, after this interest rate reduction, the monthly supply will be reduced by 89 yuan and the total interest expenditure will be reduced by about 32100 yuan. 3) Support the release of reasonable demand and enhance market confidence. The LPR cut and the lower limit of the first mortgage interest rate both reflect the determination of the central bank to stabilize effective demand. From the past cycle, the interest rate reduction cycle is usually included in the industry policy easing cycle, and the upward sales starts 2-3 months after the interest rate reduction (see our report for details: the five-year LPR is lowered for the first time after 21 months, and the industry policy still needs to be further improved; continue to be optimistic about the real estate sector). When interest rate cuts and industry easing occur at the same time, the fundamentals are expected to improve, or drive the volume and price of the industry to stabilize.
The reduction of LPR over a period of more than 5 years has enhanced the confidence of home buyers, but the boosting effect on the total demand remains to be seen, and the wait-and-see mood is still there. We believe that from the perspective of the actual policy implementation effect, the role of the adjustment of housing loan interest rate is relatively limited. If there are more credit policies with stronger market effectiveness (such as the central bank issuing a document to reduce the lower limit of the down payment ratio of commercial loans, local governments continue to adjust the "housing and loan recognition" standard, etc.) in line with the loose policies of other industries and expand in higher-level core cities, it can play a more effective role in boosting market confidence.
Investment suggestions:
Although the fundamentals of the real estate industry have not been improved yet, both macro easing and industry easing are relatively certain. The higher than expected reduction of LPR over a five-year period is good for boosting the confidence of the real estate market. We believe that the current industry logic has gradually changed from "whether the policy will be loose" to "whether the policy can achieve practical results". Although the transmission of the policy to the market still takes time, the expectation of stabilizing the fundamentals begins to gradually increase. It is suggested to continue to pay attention to the opportunities of the real estate sector. 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.
