It is expected that the decline of mortgage interest rate will promote the market recovery, and the policies of second and third tier cities will continue to work. The industry pattern is also undergoing continuous changes. We’re optimistic about the shell of the Wuxi Online Offline Communication Information Technology Co.Ltd(300959) Xiamen C&D Inc(600153) .
The decline in mortgage interest rates is expected to drive the market recovery. The five-year LPR interest rate was lowered to 4.45%, and the lower limit of the first house mortgage loan interest rate was lowered to 4.25%. The lower limit of the first house mortgage loan interest rate is 138 basis points lower than the weighted average interest rate of individual housing loans at the end of 2021. When the mortgage pricing is significantly higher than the long-term LPR, the lower limit of the first mortgage loan interest rate and the five-year LPR interest rate have been continuously reduced in a very short time, but the one-year LPR interest rate has not been adjusted, which reflects the monetary policy’s urgent attention to the current situation of insufficient residents’ willingness to debt and rare net repayment of personal housing loans (housing loans decreased by 60.5 billion yuan in April 2022). Historically, interest rates have fallen by more than 130 BP, which generally means that other real estate demand restriction policies are liberalized at the same time, and will have a positive impact on demand.
Market recovery in first tier cities mainly depends on the progress of the epidemic. At present, the second-hand houses in Beijing, Shanghai and other places are under the influence of the development of the epidemic in some areas. Historically, the mortgage interest rate pricing in the first tier cities is generally lower than that in the second and third tier cities, and the decline of interest rate may have a greater impact on the market.
Assuming that the local epidemic situation gradually subsides after the third quarter, we believe that even without other policies, second-hand housing transactions in first tier cities will recover. Due to the epidemic situation, medium and large houses with low floor area ratio and relatively new age may be more sought after by the market.
The recovery of the market in the second and third tier cities needs to be continued by the policy. We have noticed that in the past three months, all localities have implemented policies to support rigid demand and improvement demand. Although the specific contents of policies are different in different cities, the overall scale of liberalization of purchase, loan, price and sales restrictions is getting larger and larger, and the speed of policy introduction is getting faster and faster. On the whole, there is still a lot of room for the relaxation of the four restrictions in the second and third tier cities. With the decline of interest rates, we believe that the market may also recover significantly in the third quarter.
The capital cost burden of enterprises has generally decreased, the profit quality of the project is expected to be stable, and the investment willingness is expected to recover slowly.
The dismal sales situation in the first quarter made enterprises lack investment willingness even if the financing channels were smooth. In the medium term, we believe that the decline in market interest rates (although the one-year LPR has not been adjusted this time) is also conducive to high-quality real estate enterprises to reduce capital costs. The industry competition pattern has been adjusted, and the competition in the land market is more rational. Blue chip real estate enterprises have ushered in a window to stably expand high-quality land. We believe that the investment willingness of enterprises will also be improved.
Risk factors: as some real estate enterprises include assets and liabilities, there may be exchange rate risk in US dollar bonds.
Some fourth tier cities have lacked room for policy relaxation, mortgage pricing may also be higher than the first tier, and there is still pressure on market activity. Despite CDs and other policy support tools, the situation of some corporate bonds with tight funds being extended or even defaulted has not ended.
Industry recovery and pattern adjustment coexist, and they are optimistic about blue chip real estate enterprises. We believe that the mortgage interest rate, which is crucial to the real estate industry, is accelerating the decline, the four limit measures on the demand side are accelerating the liberalization, and the industry fundamentals are expected to recover in the third quarter. At the same time, the industry pattern is also undergoing unprecedented adjustment. We’re optimistic about the shell of the Wuxi Online Offline Communication Information Technology Co.Ltd(300959) Xiamen C&D Inc(600153) .
