Events
The national interbank lending center authorized by the people’s Bank of China announced that the quoted interest rate (LPR) of the loan market on January 20, 2022 was: the one-year LPR was 3.7%, a decrease of 10bp compared with the previous month; The LPR over 5 years was 4.6%, a decrease of 5bp compared with last month.
Commentary
LPR was down regulated simultaneously. The last one-year and five-year LPR was lowered simultaneously in April 2020, and this time it was lowered again after a lapse of 21 months. We believe that the 5-year LPR, as the benchmark interest rate of mortgage interest rate, has a positive signal effect on the real estate industry. Based on the observation of current real estate fundamentals, we believe that the reduction of 5-year LPR may only be the beginning. Mainly because the current negative feedback of the real estate industry is not over yet, the key to solving the problem is to stabilize sales. We pointed out in our external report on January 16 that it is urgent to introduce effective policies to prevent the negative feedback cycle of the real estate industry at the current stage, which is also crucial to the steady economic growth of the whole year. We believe that the 5-year LPR decline of 5bp has helped to reverse confidence to a certain extent, but more policy cooperation is still needed to stabilize sales. We maintain our previous judgment and expect that there is a high probability of the introduction of sales policy combination in the next week or two.
What might be the content of the policy mix? In terms of specific policies, we believe that it may be possible to reduce mortgage interest rates, liberalize purchase and loan restrictions in second and third tier cities, reduce the down payment ratio of second homes, rationalize the supervision of pre-sale funds, and more second and third tier cities are expected to follow up.
Hot cities continue to cut mortgage interest rates. Last week, Guangzhou and Suzhou lowered mortgage interest rates again. Guangzhou has been lowered to 5.5%, down 35bp from 5.85% in September last year. At present, the first mortgage interest rate of mainstream banks in Suzhou has been significantly reduced. The first mortgage interest rate of Industrial And Commercial Bank Of China Limited(601398) , Agricultural Bank Of China Limited(601288) and China Construction Bank Corporation(601939) is 5.0%, and the minimum interest rate of Bank Of China Limited(601988) is 4.95%, which is the lowest among the four banks at present. In addition, from the historical sales growth rate and the trend of mortgage interest rate, the mortgage interest rate will be reduced in the stage of year-on-year decline in sales for more than 6 months. We think there are more cities with lower housing loans. For example, the mortgage interest rate of the first house in Nanjing remains at a high level of 6.15%, and there is more room for subsequent reduction.
Second and third tier cities have liberalized purchase and loan restrictions and reduced the down payment ratio of second tier houses. We believe that the probability of liberalizing purchase restrictions in first tier cities is small. According to the data of the central index Institute, the inventory in Beijing, Shanghai and other cities is not high at present. If house prices are relaxed, there will be upward pressure, and the release probability of second and third tier cities is relatively large. In addition, in terms of reducing the down payment ratio of second homes, cities have begun to implement it, and more follow-up is expected. In December 2021, the CBRC stated at a press conference that “at this stage, we should focus on meeting the mortgage needs of the first house and improved housing according to different local conditions”. We think this will be implemented in January. In the notice on adjusting the housing provident fund loan policy recently issued by Beihai City, Guangxi, it is also pointed 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, it is decided to adjust the housing provident fund loan related policies, 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%.
Rationalize the supervision of pre-sale funds. At present, there is no unified regulation on the supervision of pre-sale funds in China. Since the thunder storm of Evergrande in 2021, the supervision of pre-sale funds in various places has been rapidly tightened, which has greatly affected the fund allocation arrangement at the group level of real estate enterprises. We believe that in the current stage when the downward trend of sales has not been reversed, real estate enterprises are facing the dual pressure of project payment at the end of the year and public debt maturity. The return of pre-sale funds to rational supervision is the fastest adjustment means to alleviate the cash flow of real estate enterprises. At present, some cities have issued relevant adjustment regulations. On January 18, 2022, the official website of Shandong Yantai housing and Urban Rural Development Bureau issued the notice on implementing incentive measures for Yantai trustworthy Housing enterprises in 2020, which made it clear that for development enterprises with AAA credit rating, the retention proportion of pre-sale regulatory funds of commercial housing will be reduced by 5 percentage points, and for development enterprises with AA credit rating, the retention proportion of pre-sale regulatory funds of commercial housing will be reduced by 3 percentage points. But as far as the fundamental problem is concerned, we think we still need sales to pick up.
Investment advice
With the reduction of the five-year LPR, we expect that more policy combinations will be introduced in the real estate industry in the next week or two, and there may be a large market in the real estate sector. We believe that the focus of follow-up market attention will gradually switch from steady state-owned enterprises to highly flexible private enterprises, such as rongchuang China and Seazen Holdings Co.Ltd(601155) . In the long run, we are still optimistic about high-quality state-owned enterprises and real estate enterprises with contrarian sales growth in 2021-22, such as Poly Developments And Holdings Group Co.Ltd(600048) , 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
