Thinking Series on The Allocation of Large Classes of Assets (10)
This article was originally published in the "Economic Machine" public account (ID: EconomicMachine), please be sure to indicate the source when reprinting.
Recently, the market has paid great attention to the real estate market, and the Shenzhen real estate industry research minutes circulated on the Internet have brushed the screen, and the information on the regulatory authorities' statement to stabilize real estate-related credit has been widely circulated in the circle of friends. So, what's going on with the real estate market? What is the reason behind it? Has the policy been loosened? Has the darkest hour passed? Should I go to the bottom? Let's comb through it together:
1. How has the real estate market been doing lately?
A: Recently, the real estate market has been rapidly entering winter, and the risk of hard landing has risen significantly. Whether it is sales volume, or sales price; whether it is the real estate market, or the land market; whether it is a first-tier city, or a second-, third- and fourth-tier city, there are signs of rapid winter, and the indicator deteriorates very quickly.
1) The number of new construction and sales of commercial housing has declined rapidly. The year-on-year growth rate of newly started area has been negative for 6 consecutive months, with a decline of up to 20%. In the past three months, the monthly data of national commercial housing sales has shown negative growth for three consecutive months compared with the same period last year, with a double-digit range. The rate of deterioration, the magnitude of the absolute decline, and the length of time, second only to that of the 2008 global financial crisis.
Figure 1: Sales volume of commercial housing and new construction: year-on-year
From the bottom up, according to Kerry data, the sales of the top 100 companies have shown negative growth year-on-year since July, and by October, the same decline as much as 32.2% over the previous year. Excluding the base disturbance during the epidemic in 2020, in recent months, the absolute level of sales of the top 100 companies has shown a significant decline in terms of both month-on-month and compared with the same period in 2019 (Figure 2).
Figure 2: Sales of Top 100 Companies and Year-on-Year (Kerry Data)
2) In terms of prices, there has been a "rare" synchronous decline in all tier cities across the country. From 2015 to 2016, the real estate market was in a synchronous upward stage, with the first line leading the second line and the second line leading the third and fourth lines. Between 2017 and 2020, there will be differentiation between various tier cities. Since the second half of 2021, under the impact of multiple factors, the first, second, third and fourth-tier house prices have fallen in tandem (Figure 3).
Figure 3, 70 cities second-hand residential house price index
Excluding the singular value affected by the epidemic in February, the number of cities in September that fell month-on-month hit a new high in nearly a decade, reaching the highest since 2015. The listing price of second-hand houses in 40 large and medium-sized cities is displayed
In the faster hot cities of the past this year, such as Shenzhen, Shanghai, Guangzhou, Chengdu, etc., the listing price of second-hand houses has shown a clear turning trend in recent months (Figure 4);
Figure 4: The listing price of second-hand houses in some hot cities has begun to fall
In cities where house prices have "fallen" in the past few years, the recent downward momentum has accelerated significantly. Such as Shijiazhuang, Tianjin, Shenyang, Harbin, etc. (Figure 5). So we see on the Internet harbin, Shenyang and other cities introduced a variety of "survival desire" strong loose moves, that must be true, there is no way, the pressure is too great, and if you do not save, it is difficult to say whether the salary can be issued.
Figure 5: The listing price of second-hand houses in some adjusted cities is accelerating the correction
3) The land market has cooled rapidly, the auction premium rate has dropped sharply, and the number of streaming auctions has risen sharply. Since April this year, the premium rate of land transactions in Baicheng has continued to decline, from a high of nearly 30% to only 1.94% at the end of October, close to the lowest level in history in 2012 (Figure 6). Since the land transaction premium rate cannot be negative, the premium rate of 1.9% is basically the lowest in history.
Figure 6: The premium rate of land transactions in 100 large and medium-sized cities
According to Kerry data, the second batch of concentrated land auction rate in key cities such as Changsha, Beijing, Hangzhou and Guangzhou exceeded 50%, and the flow rate of other cities also increased significantly compared with the first round (Figure 7). At present, the real estate financing environment is in an extremely deteriorating state, the survival of the head enterprises is a problem, and it is really a "luxury" thing to get land.
Figure 7: Comparison of the rate of two rounds of concentrated land auction in key cities
2. What is the reason for the rapid wintering of the real estate market?
A: The reasons are complex. From the perspective of the real estate market itself, it has an endogenous demand for adjustment. Since 2015, the real estate market has experienced a round of "bull market" market, although there has been a differentiation between some cities in the past two years, but the national view, the real estate market still maintained a high state of prosperity. Purchase restrictions and loan restrictions in various places have flattened the high point of the boom, but also extended the time of the boom. This continuous state of "high fever" is certainly unsustainable, and there is a need for endogenous adjustment;
The tightening of credit policies in the past period and the imminent bankruptcy of some real estate head enterprises are the direct reasons for the rapid winter of real estate in the near future. For example, the setting of the "three red lines" of real estate enterprises on the capital demand side and the setting of the concentration of real estate risk exposure at the bank end. Of course, the regulatory level has also given a transition period of "red line to green", and it cannot be said that policy tightening has directly led to the rapid winter. However, under the tightening of credit conditions, real estate developers can only withdraw funds to deleverage in order to "meet the standards", so they will definitely tighten in the "money-consuming" behavior such as land acquisition and construction (Figure 8). In addition, Evergrande and other companies are on the verge of bankruptcy, and the bonds of real estate companies have fallen into "junk bonds". Since the problems are all large real estate developers (small real estate developers directly lie flat), it has a significant impact on the expectations of the real estate market. Many home buyers are afraid of the end of their new home purchase and have postponed the decision to buy a house.
Figure 8: Entrusted loans and trust loans: significant reductions in 2021
The pilot project of real estate tax is brewing and launching, which has also accelerated the pace of real estate winter. Real estate tax has always been a "rule changer" with high hopes, and the setting of specific rules will be related to the development prospects of the real estate industry, as well as the holding costs and expectations of home buyers. Before the real estate tax "boots" land, it is not difficult to understand that buyers postpone or even cancel the decision to buy a house.
3. What does it mean that real estate is winter, and can it be "broken wrists" and "scraped bones to cure poison"?
A: Under high housing prices, the real estate industry has always been in a state of "thousands of fingers", which is opposed to the "real economy". Many experts advocate the determination to "scrape bones to cure poison" and "break the wrists of heroes" and use strong drugs to "decouple" China's economy from real estate. Therefore, for some people, the winter of real estate is more like a "premeditated" experiment, and they advocate policy austerity to force "decoupling" and "clearance".
These experts are simple and rough," and they far underestimate the complexity of real estate and the operation of economic machines. These suggestions of patting their heads and shouting slogans are more of a cajoling and chaos, to some extent, "no difficulty to create difficulties." If these crude proposals are adopted and implemented, China will not be far from the collapse of Japaneseization.
We have previous public articles (such as "In the second half of the year, where may the black swan come from?"). "Evergrande time is running out, escape guide please be prepared"), repeated warnings about the systemic importance of real estate, including
1) Real estate and upstream and downstream account for more than 30% of GDP.
2) In 2021, the income from land sales has exceeded the local public finances. If real estate lands hard, then local governments are not far from bankruptcy. Local governments are the core engines of economic growth, and land finance is the core channel of money creation, and once these two are turned off, the consequences are unimaginable.
3) Bank credit accounts for 27% of the narrow caliber, and the full caliber (upstream and downstream, mortgage business loans and manufacturing mortgages) accounts for at least more than 50%. Some time ago, the relevant departments said that evergrande bankruptcy had little impact. If it is a true idea, then it clearly underestimates the complexity and relevance of the economy. Although Evergrande only has more than 200 billion yuan of bank loans, its nearly 400 billion trust loans and more than 600 billion yuan of upstream and downstream supply chain debt, these upstream and downstream ultimate creditors are also banks. Therefore, under the premise of avoiding moral hazard, avoiding disorderly default is the result of real responsibility and great wisdom. "The optimal road is narrow, but it exists".
4. Has the policy begun to be loosened? Is it at the beginning of a new round of relaxation?
A: The policy is really loosening. In fact, as early as before and after the National Day, the decision-making level released a signal to relax, such as the financial street forum, the top financial leaders proposed that "reasonable needs are being met", such as the regulator proposed to "support the first home buyers in terms of loan down payment ratio and interest rate". This week, a survey by a think tank in Shenzhen and the relaxation of support for real estate credit by the macro authorities of the Internet are a continuation of this loosening. The loosening of the policy reflects the forward-looking and pragmatic decision-making level, and the seeking truth from the policy can definitely avoid the emergence of the "black swan" scenario.
It is too early to say that a new round of relaxation has begun. Objectively speaking, the current policy relaxation is more of a "correction" of the excessive tightening of previous policies, and there is still a long way to go from the complete turn of the policy. The central government adheres to the national policy of "housing and not speculation", and while cracking down on speculation and speculation, it is also encouraging reasonable demand and rigid demand, after all, the purpose of regulation and control is to allow just need to buy a house at a lower cost. However, in reality, in order to curb the excessively rapid rise in house prices, the down payment ratio of the first home in some places has also increased significantly, and the loan interest rate has even risen at the benchmark level, which has mistakenly hurt the just need. After a meal of operation, the house price has not fallen, it is difficult to say, just need buyers to get on the car threshold must be raised.
It is more difficult to expect a new round of relaxation in the real estate industry. First, the current housing prices in hot cities are still high, high housing prices are still the sharpest contradiction in the current society, and the new round of great relaxation of the political environment is not available; second, under the basic national policy of "housing and not speculation", the road to relying on water release to stimulate real estate to stabilize growth has been blocked. Correction is OK, but it is too difficult to turn around.
5. Has the darkest hour of real estate passed? Can policy deregulation reverse the downtrend?
A: At this point, it is too early to say that the darkest hour is too early. In view of the complex causes of the rapid winter of real estate and the large inertia of the trend, simple policy correction is not enough to reverse the downward trend. The destruction of faith is easy, but rebuilding is clearly much harder. The superposition of multiple factors has contributed to the downward trend, and only the introduction of comprehensive measures and "thunderbolt means" can completely reverse the trend.
Structural problems still exist under the scenario, rushing large-scale stimulus, the effect or doubtful, objectively increases the difficulty of reversal. At present, the "shock wave" of the real estate giant thunderstorm has not yet been fully released, and the real estate tax rules and regulations boots have not yet landed. Under the unclear basic rules and expected prospects of the real estate market, it is obviously much more difficult to rely solely on stimulation and release of water, repeat the previous routine, and restart the market.
6. Is it time to read the bottom? Can I buy a house? What about real estate stocks?
A: Just need to choose the time, improvement or investment advice wait and see. We have always had a view that when you need to choose, you can buy when you need it. Even if the real estate tax is introduced, the probability of a sharp decline in the trend of house prices is not high, after all, it is the pro-son and the root of life, which is involved in the whole body. Of course, if you can't see clearly, or the current house prices are too high, and it is difficult to get on the car, you can wait, after all, the space for policy marginal relaxation is still there, and the space for cyclical corrections in housing prices in some cities is still there. As for the need for improvement, you can wait for the property tax boots to land. As for investment needs, we strongly do not recommend.
Real estate stocks, or there is a chance of a rebound, the big reversal still needs to see more signals. Real estate stocks have fallen in the past period of time "parents do not know", the big fall + policy marginal improvement, "oversold rebound" has become the least resistance of the choice. Some individual stocks may have a short-term rebound of 10%-30%, but for some targets with flawed financial conditions, we still do not recommend to read the bottom, and those who participate in the rebound should stop at the right time. At the same time, we also continue to be optimistic about the "Flight to Quality" strategy, some state-owned enterprises, central enterprises background / financially sound real estate giants (such as xxA, xx development?). We continue to be bullish. After a mess, those who survive are bound to be stronger and the industry structure is better.