Lead
The new round of financing support for the transformation of urban villages has been increased, with special loans exceeding one trillion yuan; the early stage of the transformation is mainly led by the government, and the expectation of social capital entering the market is not optimistic; the central urban investment is the main cooperation object, and there are also opportunities for private enterprises that are deeply involved in the urban renewal track.
01
The PSL has been restarted, special loans have been set up, and a new round of financing support for the transformation of urban villages has been increased
1. The transformation of urban villages has been slow for a long time, and the policy will be listed separately from 2023 (omitted)
2. The central and local policies should make concerted efforts to strengthen the financial guarantee for the transformation of urban villages (omitted)
3. Restart PSL, with a net increase of 500 billion yuan in two months, and speed up and increase efficiency of the "three major projects" (some omitted)
Looking back at the history of the launch, the central bank has had three rounds of large-scale PSL delivery since 2014.
The first round of investment mainly took place from 2015 to 2018, and the first round was mainly to support the transformation of shantytowns during the 13th Five-Year Plan period. In 2014, the central bank provided 383.1 billion PSL funds, and the average annual new funds from 2015 to 2018 were nearly 800 billion, and with the decline of shantytown reform in 2019, the new PSL investment in that year decreased by 61.4% year-on-year to 267 billion, and the overall PSL in 2020 was reflected as a net repayment, and the balance showed a downward trend.
The second round of investment took place from September to November 2022, during which the new PSL investment reached 630 billion. At this time, the real estate sales market continued to bottom, credit risk began to spread, there was a wave of defaults, project suspension, delivery overdue occurred from time to time, in July of the same year, the Political Bureau of the Central Committee for the first time proposed to "ensure the delivery of buildings, stabilize people's livelihood", speculated that this round of investment is used to ensure the delivery of buildings.
The third round, that is, this round of delivery, will take place from December 2023 to January 2024, with a total of 500 billion yuan invested in two months, which is the third peak of delivery since the creation of PSL, and there may be multiple rounds of delivery in the future. Combined with the "Report on the Implementation of China's Monetary Policy for the Third Quarter of 2023" in November 2023, which pointed out that the implementation of the "16 financial measures" for real estate, the increase of financial support for the transformation of urban villages, the construction of public infrastructure for "flat and emergency purposes", and the construction of affordable housing, and the governor of the central bank clearly pointed out at the end of 2023 that "medium and long-term low-cost financial support will be provided for the construction of 'three major projects' such as affordable housing", this round of PSL is expected to be used for "three major projects" construction, strengthened the expectation of special loans for the transformation of urban villages.
02
The implementation of various financial measures for the transformation of urban villages has been accelerated, and the credit of special loans has exceeded one trillion yuan
1. The sources of funds for the transformation of urban villages are diversified, and the expected support of various types of funds may be different (some omitted)
Different channels have different funding sources, and the level of support is expected to vary. Specifically:
The support of local fiscal funds and special bonds may be relatively limited. With the support of policies, the government will continue to play an important role in the transformation of urban villages and play a leading role. Under the principle of "marketization as the main body", more will be used as capital or "introduction" to leverage more social capital participation, and the probability will not be the majority.
Policy bank loans have become one of the key sources of funds for this round of urban village transformation. The special loan for urban village renovation is an important financial instrument innovation in this round of urban village transformation, and the main body of the fund issuance is the China Development Bank (hereinafter referred to as "China Development Bank") and the Agricultural Development Bank of China (hereinafter referred to as "Agricultural Development Bank"), which is characterized by low cost, long term, closed operation, and special funds, which can effectively solve the difficulties of large investment, long cycle and financing difficulties of urban village projects, and has been strongly supported by policies. In particular, with the resumption of PSL by the central bank in December 2023, the expectation of special loans for urban village renovation has been further strengthened.
"Market-oriented operation" will drive commercial banks and financial institutions to explore more credit products for urban village transformation. Under the principle of "market-oriented", credit from commercial banks and financial institutions is an important source to meet the needs of renovation funds. The "Guiding Opinions" encourage banking financial institutions to provide loans for the reconstruction of urban villages in accordance with the principles of marketization and rule of law. With the deepening of commercial banks and financial institutions in the financing of urban village reconstruction, it is expected to launch more related loan products to meet the credit needs of urban village reconstruction.
The Urban Renewal Fund is also an important way to raise funds. The operation of the fund model has the characteristics of flexible financing and low cost, and can give full play to the leverage effect of capital to meet the huge capital needs of urban village transformation. This model has been implemented in Shanghai, Xi'an and other cities, and there is more mature experience in fundraising, investment, management and withdrawal. With the encouragement of the government, the Urban Renewal Fund will be more involved in the new round of urban village transformation.
It is worth noting that the sources of funding for urban village renovation vary depending on the approval stage of the project. For example, in the early stage of project planning approval, the project renovation funds include special loans for urban village transformation, government-guided urban renewal funds, non-standard financing, self-owned funds, etc.; after obtaining planning approval, you can apply for bank loans and special bonds; in the operation stage, after completion, the real estate project asset securitization can be used to introduce the rest of the social funds.
2. The special loan fund has a significant advantage, landing in at least 34 cities, and the proportion of early fund allocation is small
The number of cities in the transformation of urban villages has been expanded to 52, and the cumulative investment of policy banks is at least 120 billion yuan (omitted)
At least 34 cities have been landed, with a credit of over one trillion yuan, and the first batch of loans has exceeded 36 billion, and the early allocation is small (some omitted)
From the perspective of the implementation of each city, according to incomplete statistics, from the end of January to March 22, the first batch of special loans for urban village renovation has landed in at least 34 cities, with a cumulative credit amount of 1,019.2 billion yuan for more than 460 projects, and the first batch has actually invested more than 36 billion yuan.
First of all, in terms of credit scale, the first batch of loans in 7 of the 34 cities currently landed, including Dalian, Dongguan, Nanjing, Shanghai, Shenzhen, Suzhou and Xi'an, has been landed, but the specific credit amount has not yet been disclosed. In other words, the cumulative credit amount of the 27 cities currently disclosed is 1,019.2 billion yuan, which is equivalent to about 37 billion yuan of loan credit for urban villages in each city, so it is speculated that the actual credit amount of the 34 cities may be close to 1.3 trillion yuan. From the perspective of a single city, Guangzhou and Chengdu have a credit amount of more than 100 billion yuan, Jinan, Changsha and Chongqing have a credit amount of 600 to 100 billion yuan, Nanning, Zhengzhou, Hefei, Wuhan, Beijing and Hangzhou have 100 to 60 billion yuan of credit offices, and Ningbo, Changzhou and Wuxi have less than 10 billion yuan of credit. From the perspective of the credit amount of a single project, the average credit amount of a single project in a city is about 5 billion, and there are 8 cities that exceed the average level, including Guangzhou (10.2 billion), Nanning (7.4 billion), Beijing (6.5 billion), Foshan (4.1 billion), and Kunming 4 billion.
Secondly, in terms of loan progress, since Nanjing, Shenzhen and Nanning did not disclose the first batch of loans, the current 31 cities that have disclosed the first batch of loans have a cumulative amount of 36.3 billion, accounting for only 3-4% of the overall credit. Based on CDB's statement that it will "strictly implement the requirements of earmarked funds and closed management, and issue loans according to the progress of project implementation", the scale of funds allocated for the urban village reconstruction project in the early stage is small, and the funds will be allocated according to the progress of project development and construction in the later stage. From the perspective of individual cities, Wuhan (31.02%) and Ningbo (17.82%) are the top two cities in terms of loan progress, Fuzhou (9.12%) and Jinan (7.84%) have more than 10% of loan progress, and Hangzhou (5.9%), Zhengzhou (4.72%) and Beijing (4.23%) also have relatively high implementation efficiency.
Finally, the proportion of special loans in the total investment of projects varies greatly among cities. (omitted)
It is expected that the investment in the early stage of this round of urban reform will mainly rely on special loans, and the diversified funds will be actively introduced in the later stage (omitted)
3. Shanghai and Tianjin have set up tens of billions of urban renewal funds, and Xi'an's experience and practices can be replicated
Multi-city exploration of urban renewal fund model, the scale of funds is often tens of billions (some omitted)
Urban renewal funds have become the mode of choice for many cities to implement transformation. As of the end of March 2024, Guangzhou, Shanghai, Tianjin, Xi'an, Nanning, Wuxi, Nanyang and other cities have set up urban renewal funds, and on February 26, 2024, Hefei Urban Construction announced that it intends to establish Hefei Urban Development and Construction Fund. In addition, Zhengzhou, Jinan, Xuchang and other cities are also exploring the establishment of urban renewal funds.
From the perspective of the city funds that have been established, the scale of funds ranges from hundreds of millions to tens of billions, most of the urban renewal funds are large, up to 10 billion yuan, and the total scale of Shanghai's urban renewal funds is 80 billion yuan.
In general, one of the major advantages of the urban renewal fund is that it leverages social capital through government funds, gives full play to the leverage effect of capital, and can better meet the huge demand for funds, which is especially applicable to urban village renovation projects, and is also more widely used in practice.
The operation of the fund has mature experience, and the experience and practice of Xi'an have been selected for national promotion (omitted)
4. Special loans reduce the concerns of commercial banks and provide funds for the secondary development of land (some omitted)
From the perspective of commercial banks, for the sake of profit maximization, their loans are usually biased towards businesses with high expected returns and controllable risks, while the early stages of urban village transformation, such as planning and design, household relocation compensation and land leveling, are not only long-term but also risky, and it is difficult for commercial banks to obtain accurate returns at this stage, so commercial banks will probably not take the initiative to intervene in the land and development stage.
However, in the current round of urban village transformation, cities such as Guangzhou and Shenzhen adhere to the principle of "net land transfer", that is, the land can only be transferred to developers after the land has been expropriated and leveled. Under this model, the special loan provides financial guarantee for the resettlement and compensation in the early stage of transformation, which greatly reduces the concerns of commercial banks about the risks in the early stage, thus clearing the obstacles for commercial banks to intervene in the secondary development of land.
From the perspective of the form of capital guarantee provided by commercial banks, in addition to loans, commercial banks can explore more innovative financial product design, with urban village reconstruction projects as the underlying assets, so as to balance the unique high-risk and high-return characteristics of such projects. For example, through asset securitization, the capital flow generated in the process of urban village transformation is packaged into financial products to attract more investors to participate, which can not only diversify risks, but also provide more diversified financial support for projects. At the same time, this is also conducive to improving the transparency of funds for urban village renovation and increasing the possibility of market supervision.
03
Guoyang Urban Investment is the main cooperation object, and private enterprises that are deeply involved in the urban renewal track also have opportunities
1. The State Central Urban Investment has obtained special loans, and the main body of Suining Hangxia is Urban Investment
Rich experience of central and local state-owned enterprises, with a high degree of adaptability to the urban village reconstruction business (omitted)
Urban investment has become the main body of loans in many places, and the transformation of urban villages has become an important business
Among the main bodies of urban village transformation and development, in addition to central enterprises and local state-owned enterprises that have advantages in resources, capital and development qualifications, local urban investment platforms are also important candidates for the government to select the main body of urban village transformation projects. According to CRIC statistics, the business types of urban investment platforms include seven categories: urban infrastructure construction, land consolidation and development, shantytown reform, transportation construction and operation, public utilities, cultural tourism and state-owned capital operation, of which the first three types of business basically cover the early and later supporting construction processes of urban village transformation, "shantytown reform 2.0" At the same time, judging from the implementation of special loans for urban village renovation and the disclosure of specific development entities, the municipal governments of Guangzhou, Nanjing, Hangzhou, Xiamen, Tianjin and other cities have chosen urban investment platforms as the main body of "unified borrowing and repayment", so urban investment platforms with development capabilities are more popular choices.
2. Private enterprises with experience in old renovation focus on urban village renovation business and continue to build business advantages (omitted)
3. Agents of real estate enterprises have the opportunity to obtain transformation resources, and existing enterprises sink the stock transformation business (omitted)
04
In the early stage of urban village transformation, the government is mainly led, and the expectation of social capital entering the market is not optimistic (some omitted)
After the promulgation of the "Guiding Opinions", the central government has repeatedly voiced to increase financial support to escort the implementation of urban village transformation, and the city has also introduced relevant policies to strengthen the financial guarantee for urban village transformation.
At present, the sources of funds for the transformation of urban villages include local fiscal funds and special bonds, policy bank loans, urban renewal funds, credit from commercial banks and financial institutions, asset securitization, free funds for transformation entities, and other social capital. With the support of various sources of funds, the transformation of urban villages is expected to open up a new development situation, especially the centralized credit and issuance of special loans for urban villages, which further improves the expectation of urban village transformation.
Under the huge market opportunity of urban village transformation, real estate enterprises can participate in it through investment and development, agent construction, agent operation, etc., but this will also be a hard-fought competition, and these "hard power" such as capital, territory, background, and experience ability will be used as the main bargaining chips for enterprises to compete. In the actual engagement strategy of the enterprise:
SOEs/SOEs should give full play to their advantages in terms of financial strength, policy understanding and project management, and actively participate in large-scale urban village renovation projects. Consider establishing a PPP model with local governments to share project risks and project benefits.
As the investment and financing platform of local governments, urban investment companies should make full use of their role in the allocation of local resources and lead or participate in urban village reconstruction projects. Through the establishment of urban renewal funds and other means, we can attract the participation of social capital and form a cooperative development model guided by the government and participated by the society.
Private enterprises, on the other hand, can focus on their experience and advantages in specific regions or market segments, and participate through refined management and innovative business models. Or cooperate with local urban investment companies and communities to form a "small but beautiful" cooperative development mode, focusing on the transformation and operation of specific communities.
However, the transformation of urban villages is not achieved overnight, and a series of problems will inevitably be encountered in the actual promotion. On the one hand, despite the emphasis on "market-oriented operation", the macro economy is still recovering, coupled with the continued downturn in the real estate market, in the short and medium term, the expectation of social capital entering the market is not optimistic, many projects are still expected to be led by the government, long-term financial policy support is very important, and it is important to avoid "thunder and rain".
On the other hand, the market for urban village transformation is not yet mature, and the government should give full play to its role of support and guidance, strengthen the construction of norms and standards, and ensure the realization of the efficiency and effect of transformation. First, the standardization of fund management, Fuzhou, Wuhan and other places have issued management measures for the use of special loan funds for the transformation of urban villages, and the specific implementation still needs to be further wait-and-see. The second is the standardization of the implementation of transformation, including the establishment of standards for demolition and new construction, but the transformation of urban villages has different problems in each village, and it is difficult to absolutely standardize, and it is also necessary to adopt the implementation plan of "one village, one policy" according to the actual situation and local conditions. In addition, the transformation of urban villages involves a large number of related parties, and the division of labor and cooperation and the performance of their own duties are particularly crucial.
In general, the transformation of urban villages is a long-term and arduous project, the future "road resistance and long", the actual policy effect and capital landing of each city still need to follow up in real time, at the same time, the property market has not been repaired, there are still many uncertainties in the operation of real estate enterprises, and participation in the transformation of urban village projects should also be done within their means, and the best ones should be entered. (Source: CRIC Real Estate Research)