Events
On January 14, 2022, surging news learned from Guangxi Beihai housing provident fund management center that Beihai recently issued the notice on adjusting the housing provident fund loan policy. The notice points out that in order to implement the differentiated credit policy, meet the needs of employees for improved housing, and take practical actions to support the steady and healthy development of the real estate market. After deliberation and approval by Beihai housing provident fund management committee, it is decided to adjust the relevant policies of housing provident fund loans. If the employee’s family purchases a second house or applies for a second housing provident fund loan, the minimum down payment ratio will be reduced from 60% to 40%.
Commentary
The policy has entered the stage of substantive implementation from shouting and blowing. Since July 2021, national commercial housing sales have been declining for six months year-on-year. In the second half of last year, a number of real estate enterprises exploded, causing the spread of credit risk in the industry. The major real estate enterprises increased marketing efforts and failed to reverse the downward trend of sales. Among the top 100 real estate enterprises, the sales completion rate of enterprises that announced sales targets in 2021 was less than 90%. The rapid decline of the sales market has changed the regulatory attitude from strict regulation to moderation. Since October 2021, the Ministry of housing and urban rural development, the central bank, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and other departments have expressed their support for the steady and healthy development of the real estate industry. However, in terms of actual situation, due to the rapid tightening of pre-sale capital supervision after the sales downturn and Evergrande thunderstorm, the cash flow situation of most real estate enterprises had not improved significantly in the previous three months. For real estate enterprises, the project payment before the Lunar New Year is a rigid expenditure. In addition, in March, the real estate industry has more than 70 billion yuan of public bonds due. If the market situation does not improve, there will be more storms for real estate enterprises. We believe that it is urgent to improve the cash situation of real estate enterprises. The reduction of the down payment ratio of provident fund for second homes in Beihai means that the corresponding policies have entered the substantive implementation stage.
What are the possible time points and measures for the introduction of policies in the future? We believe that more improvement policies will be introduced in the next two weeks, In order to prevent the current negative feedback cycle of the real estate industry (downward sales & strict control of pre-sale regulatory Funds & poor financing → poor cash flow of real estate enterprises → public debt default → runs caused by suppliers’ and other creditors’ demands for prepayment → outbreak of negative news → steep decline in sales → depletion of cash inflow of real estate enterprises, increasing inability to repay debts → more debt defaults) 。 Logically, there are three ways to relieve the cash flow pressure of real estate enterprises: ① increase the operating cash inflow (improve sales), ② increase the investment cash inflow (speed up the asset sales of real estate enterprises in danger. At present, major banks are supportive of M & A loans, but in fact, it has little effect), ③ Increase financing cash inflow (for equity and debt financing, the regulatory authorities have accelerated the approval speed, but whether it can be implemented in the end is a market-oriented behavior, which still depends on whether the price is accepted by the buyer and the seller). The above second and third ways are only short-term renewal for real estate enterprises, or individual real estate enterprises may be rescued through the green city model (selling equity to central enterprises and becoming mixed ownership enterprises). For most real estate enterprises, it still depends on sales stabilization to really reverse the situation. Therefore, we believe that only by improving sales can we really solve this round of crisis. We expect that in the future, more cities may follow up in reducing mortgage interest rates, liberalizing purchase and loan restrictions in second and third tier cities, reducing the down payment ratio of second homes, rationalizing and fine-tuning the supervision of pre-sale funds, etc.
What is the follow-up trend of sales? If the follow-up policy is issued as scheduled, the sales of first-hand houses will gradually stabilize in March. There are three reasons: 1) credit support is increasing and will continue. In the last two months, the credit support of financial institutions has continued to increase, including mortgage, development loan and M & a loan, which is expected to continue from January to February. 2) Mortgage interest rates in many cities decreased month on month, and there is still room for decline. According to the statistics of Shell Research Institute, in December 2021, the mortgage interest rates in more than 40 cities decreased month on month. The average mainstream interest rates in December were 5.64% for the first house and 5.91% for the second house, both down 5bp. The mortgage interest rates of the five major state-owned banks that established diplomatic relations between industry and agriculture in Shenzhen in December remained unchanged. The first set was 5.1%, the second set was 5.6%, and China Citic Bank Corporation Limited(601998) , Guangdong Development Bank, Bank Of Jiangsu Co.Ltd(600919) were all reduced. The first set was 4.95%, and the second set was 5.25%. We think there is still room for the mortgage interest rates of state-owned banks to be reduced. The mainstream interest rate of the first house in Nanjing is still at a high level of 6.15%, and we think there is room for further reduction. 3) Second hand housing has warmed up month on month. According to the statistics of Shell Research Institute, from November to December 2021, second-hand housing transactions in Beijing, Shanghai, Hangzhou and other cities have improved month on month. If the policy is issued as scheduled, it is expected that the improvement of second-hand housing transactions will be transmitted to new housing sales in 2-3 months.
Investment advice
With the continuous improvement of policies, it is expected that the inflection point of fundamental data is approaching. The short-term stable choice is the head state-owned enterprise with financing advantages and good reputation, such as Poly Developments And Holdings Group Co.Ltd(600048) ; At the same time, we are also optimistic that some high-quality private enterprises will face a dilemma reversal after the Spring Festival, such as rongchuang China and Seazen Holdings Co.Ltd(601155) . In the long run, we believe that real estate enterprises with contrarian sales growth in 2021 are expected to usher in a new era in the future, such as Greentown China and China Construction Development International.
Risk tips
The introduction of real estate improvement policies was slower than expected; The implementation effect of real estate improvement policies is less than expected
