The central bank pushed the LPR over five years down by 15 basis points, pushing the medium and long-term loan interest rate down. On May 20, 2022, the people’s Bank of China authorized the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on May 20, 2022 is: 1-year LPR is 3.7%, and more than 5-year LPR is 4.45%.
The above LPR is valid before the next LPR release.
The regulators pushed the mortgage interest rate of the first house down by 20 basis points to reduce the mortgage pressure on home buyers. On May 15, 2022, The notice of Bank Of China Limited(601988) Insurance Regulatory Commission of the people’s Bank of China on issues related to the adjustment of differentiated housing credit policies was officially issued: “first, for resident families who purchase ordinary self owned houses with loans, the lower limit of interest rate on commercial individual housing loans for the first set of houses shall be adjusted to not less than the market quotation interest rate of loans for the corresponding period by 20 basis points, and the lower limit of interest rate policy on commercial individual housing loans for the second set of houses shall be implemented in accordance with the current provisions.” 。
Policy impact analysis: the cost of home buyers has further decreased, and there is still room for decline in the medium and long term.
1) we believe that the five-year LPR implemented in May 2022 is 4.45%. If the mortgage interest rate of the first house is reduced by 20 basis points, the lower limit of the mortgage interest rate of the first house will be adjusted to 4.25%, which will reduce the cost of buyers and reduce the monthly repayment of Buyers by 1.28%.
2) we believe that there is a downward trend in China’s medium and long-term mortgage interest rate, and the pressure on home buyers to repay the loan will continue to reduce.
We believe that the decline of the lower limit of the first house mortgage interest rate will lead to the decline of the mortgage interest rate, and historical experience shows that the decline of the mortgage interest rate will help to promote the recovery of commercial housing sales and the rise of the excess return of the real estate sector.
1) historical fundamental performance: China’s first set of average mortgage interest rate fell continuously from the highest point of 7.02% to 4.44% from June 2014 to July 2016. In February 2015, after the first average mortgage interest rate fell for the first time, the year-on-year growth rate of commercial housing sales hit the bottom and rebounded. In addition, in February 2020, after China’s first average mortgage interest rate peaked from 5.71% in November 2018, the industry’s sales growth hit the bottom and rebounded.
2) industry index performance in history: the average mortgage interest rate of China’s first house fell continuously from 7.02% of the highest point to 4.44% from June 2014 to July 2016. In May 2015, after the first average mortgage interest rate fell for the first time, the excess return of A-share real estate index hit the bottom and rebounded moderately.
Investment advice: steady growth has just begun. The decline of mortgage interest rate will help the recovery of real estate sales in the later stage.
1) as the base number decreases and the pushing price increases, we predict that the sales will pick up in June 2022. If the sales amount is assumed to be – 30% year-on-year in 2q2022 and 10% year-on-year in 3q2022 and 4q2022, the annual sales of the industry in 2022 will be – 8.9% year-on-year. We believe that the above 2H assumption is not radical, and the sales probability of micro enterprise entities will recover in the later stage. 2) The cumulative investment growth rate is assumed to be – 30% year-on-year in 2q2022 and 10% year-on-year in 3q2022 and 4q2022, so the cumulative investment growth rate of the industry in 2022 is – 3.83%.
As we expect the annual cumulative investment to grow negatively, we judge that there is still downward pressure on the market in the future.
3) maintain the rating of “better than the big market”. On May 19, 2022, the dynamic PE of A-share CSI 300 index in 2022 was 11.08 times, and that of real estate sector in 2022 was 10.94 times. We continue to be optimistic about blue chip enterprises in the industry. A shares mainly recommend China Vanke Co.Ltd(000002) , Poly Developments And Holdings Group Co.Ltd(600048) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Jinke Property Group Co.Ltd(000656) , etc. The property sector continues to pay attention to A-Shares China Merchants Property Operation & Service Co.Ltd(001914) , New Dazheng Property Group Co.Ltd(002968) , etc. Special note: This report only summarizes the performance of China’s real estate sales and A-share real estate sector after the reduction of housing loan interest rate since 2014. It is limited to speculate and judge the future only based on limited historical experience. It is only for investors’ reference, and investors are invited to make careful judgment. Risk tip: regulate and control overweight and downside risks of industry fundamentals.
