Although in order to cope with the economic pressure and stabilize the expectations of the real estate market, the central bank offered an “interest rate cut” operation this week, at present, its boosting effect on the market remains to be seen.
Some industry insiders believe that the “inflection point” of the real estate sector is still difficult to see temporarily under the background of rising liquidity pressure in the real estate industry caused by the centralized reduction of credit rating. In addition, given that the scale of domestic and foreign bonds due and cashed in the first half of 2022 is still large, the differentiation within the sector is expected to further intensify.
market sentiment is hard to say optimistic
This week, the central bank cut the MLF operating interest rate, which triggered extensive discussion in the industry.
In the view of many people in the industry, one of the important objectives of this “interest rate cut” is to “stabilize the expectation of the real estate market”. Under the background of the continuous decline of high-yield real estate bonds, the peak of debt maturity in the first quarter and the increasing cashing pressure, this operation is not expected to be the end of this round of monetary easing, and the subsequent “RRR reduction” is expected to continue, Structural policy tools will also be launched one after another.
It is worth mentioning that recently, whether the issuance of country garden’s $300 million convertible bonds was cancelled due to the lack of interested investors, the terms of Yuzhou exchange offer were less than expected, or the issuance of Zhengrong real estate’s 2 billion yuan ABS Project was terminated, the frequent exposure of negative news and rumors in the real estate sector exacerbated the concerns in the market.
Moreover, recently, the three major international rating agencies intensively downgraded the credit rating of Chinese real estate developers, which further weakened the confidence of institutions in holding bonds. Moody’s downgraded the ratings of Yuzhou business family and senior unsecured bonds from B2 and B3 to caa2 and caa3 respectively, and Rongxin business family and senior unsecured bonds from B2 and B3 to B3 and caa1 respectively; S & P downgraded R & F’s long-term issuer’s credit rating from CC to SD, with a negative outlook; Fitch downgraded Shimao’s issuer default rating from BB to B -, and put all Shimao’s ratings on negative observation
Wan Yingling, senior director of Fitch Ratings, said: “although we expect the management to actively intervene in the real estate market to curb the chain effect caused by the risk fermentation of troubled real estate developers, there are still huge downside risks in this sector.”
“The liquidity crunch of China’s residential real estate development enterprises will force the suspension of construction projects, and the shrinking demand for real estate and the decline in housing sales will put downward pressure on commercial housing prices.” Wan Yingling predicted that, “In 2022, China’s overall house prices will drop slightly by 3% to 5%. Moreover, the overdue rate of basic assets in areas with weak economic growth may continue to rise. China has a vast territory, so the economic growth rate varies, and the performance of personal housing loan mortgage assets also shows regional differences. Fitch’s loan analysis shows that the overdue rate of personal housing mortgage loans in Northeast China is significantly higher than that in Northeast China Other regional levels. With the gradual differentiation of the trend of house prices in various regions, the expansion of the performance gap of basic assets is the general trend. “
Liu Yu, chief fixed income analyst of Gf Securities Co.Ltd(000776) Development Research Center, believes that although with the marginal recovery of policies, the net financing of real estate bonds will probably recover in 2022, the main increment will also be contributed by state-owned real estate enterprises and high-quality private enterprises, and the highly leveraged private real estate enterprises may continue to be cleared.
performance “reversal” will take time
According to the statistics of Gf Securities Co.Ltd(000776) Development Research Center, the maturity and resale scale of China’s real estate bonds in 2022 is 502.1 billion yuan, accounting for 40% of the stock bonds.
According to other public data, 2022 is the main year for the maturity of overseas foreign debt of real estate enterprises, with an annual maturity of RMB 356.02 billion. On a quarterly basis, the total due balance in the first and second quarters was high, 98.33 billion yuan and 98.39 billion yuan respectively. The due balance in the third and fourth quarters gradually decreased, 85.26 billion yuan and 74.04 billion yuan respectively. In other words, the first half of 2022 is the maturity peak of overseas foreign debt, and real estate enterprises will face a greater test.
“From the main economic indicators in the fourth quarter of 2021, the real GDP growth rate in the fourth quarter was 4.0%, slightly better than expected, but this is more related to the adjustment of statistical methods. In fact, in terms of various sub items, infrastructure, manufacturing and consumption are weaker month on month, and the negative drag on real estate is further exacerbated.” In the view of Qin Han, chief fixed income analyst of Guotai Junan Securities Co.Ltd(601211) securities, “under the benchmark situation, the actual kinetic energy of the economy is expected to be repaired by the end of the first quarter of 2022 to the beginning of the second quarter of 2022. Under the influence of the recent spread of multi regional epidemic, the uncertainty it faces will rise again.”
For the real estate industry, it is obviously too early to judge that the “inflection point has arrived”.
“At present, the inflection point of real estate has not yet arrived. Regardless of real estate investment, its growth level is still reaching a new low in terms of real estate sales. At the same time, whether it is high-frequency indicators or low-frequency indicators, whether it is leading indicators or lagging indicators, at present, no indicators related to real estate show signs of stabilization.” Guoyuan Securities Company Limited(000728) Yang Weizhen, chief macro and fixed income analyst of the Research Institute, said bluntly, “even in order to be the turning point of real estate and economy, the management has recently used loose monetary policy, but whether the credit can be really widened or not, the policy will show a process of trial and error and even correction. In this environment, the risk of stocks and bonds is man-made and uncontrollable.”
In response to the question of “how to invest in real estate bonds in the future”, the latest bond market survey conducted by China International Capital Corporation Limited(601995) shows that the highest proportion of respondents is “real estate risk fermentation will continue, real estate investment will not be considered in the short term, and the stock assets will be gradually cleared”, accounting for 49%; Another 44% of investors chose “the recent regulatory policy statement is positive, and the risk controllable varieties or state-owned issuers can increase the allocation”; Another 6% of investors chose “real estate is yesterday’s yellow flower. Even if the price of real estate bonds can rise, it is difficult to return to the previous credit status, and it is not worth taking the risk to copy the bottom”.
be careful when choosing bonds
Generally speaking, investors in the industry are still cautious about real estate bonds. Although the regulatory attitude has been relaxed recently, most institutions will not consider the investment of real estate bonds in the short term, and the stock assets will be gradually cleared.
In addition, among the few remaining investors, the issuers of state-owned enterprises with controllable risk will still be the mainstream choice, which also reflects the poor market demand for private real estate bonds and difficult to change under the circumstances of no obvious shift in the core of the current real estate regulation policy, no obvious relaxation of private real estate refinancing and frequent credit events of some real estate enterprises.
To sum up, back to the level of bond selection and allocation of credit bonds, in the environment where recent real estate credit events are still emerging one after another, for the sake of safety dimension, it is better to recommend that institutions in need over allocate urban investment bonds. After all, the current shortage of structural assets has not changed, and the supply of public bonds raised by urban investment is large, the space for securities selection is large, and the just exchange has not been broken.
As for the regional selection, industry experts suggest that we can first excavate from the central provinces and remain relatively cautious for a long time; Secondly, we can continue to explore in depth in Jiangsu and Zhejiang – selecting varieties and prolonging duration. Finally, in consideration of risk control, it is suggested to avoid provinces with heavy debt burden such as Yunnan and Guizhou and Northeast China.
