The real estate industry has entered a new adjustment cycle: "winter" and "return" have become keywords

A few days ago, the National Bureau of Statistics released data on the change in house prices in 70 large and medium-sized cities in September, showing that in September, the number of cities where the price of newly built commodity housing fell exceeded half for the first time since June 2015, while the number of cities where the price of second-hand housing fell was close to 75% of the total sample. Consistent with the market trend, the growth rate of real estate development investment has also turned from positive to negative.

Industry insiders said that "winter" and "return" may be the keywords of the real estate industry for a period of time. They believe that although the decision-making level has taken turns to release credit fine-tuning signals a few days ago, with the acceleration of the landing of real estate long-term mechanisms such as real estate taxes, the wait-and-see degree of the real estate market will be further deepened, and the supply and demand structure of the property market may usher in a certain degree of adjustment.

The market is adjusting

According to the report of E-House Research Institute, according to the arithmetic average of the sales price data of new commodity residential buildings and second-hand residential buildings in 70 large and medium-sized cities of the National Bureau of Statistics, in September 2021, the price of newly built commodity residential buildings in 70 large and medium-sized cities increased by -0.08% month-on-month, marking the first time that the prices of newly built commodity residential buildings in 70 cities have risen for the first time since May 2015 for 76 consecutive months. In terms of second-hand housing, it continued to fall for the second month since the decline in August, and the decline was 0.17 percentage points wider than the previous month.

In terms of real estate sales, according to data from the Bureau of Statistics, from January to September, the sales area of commercial housing 130332 million square meters, an increase of 11.3% year-on-year; an increase of 9.4% over January-September 2019, an average increase of 4.6% in two years. In the single month of September, the sales area of commercial housing fell by 13.2% year-on-year, of which the residential sales area fell by 15.8% year-on-year, which decreased for three consecutive months.

Pan Zhenyu, a researcher at Shanghai E-House Real Estate Research Institute, said that the number of cities where residential prices fell in September began to increase rapidly, and the property market entered a downward cycle under the background that there was no possibility of sudden change in market expectations.

According to the questionnaire survey report of urban depositors in the third quarter of 2021 released by the Chinese Bank, for house prices in the fourth quarter, 12.7% of residents expected to "decline", an increase of 2.7 percentage points from the expected proportion of 10.0% in the second quarter. Correspondingly, in terms of residents' willingness to spend and save and invest, 50.8% of residents tend to "save more", an increase of 1.4 percentage points over the second quarter, and an increase for two consecutive quarters.

Yang Kewei, a researcher at the Kerry Research Center, said that after more than 10 years of rapid development of the real estate industry, the sales scale of the industry has basically peaked at this stage, the market supply and demand have turned to structural contradictions, the housing problems of difficult groups and new citizens in core first- and second-tier cities are still prominent, and most third- and fourth-tier cities have oversupply problems. Linked to the deceleration and shifting of China's urbanization development process, the superimposed population aging problem, the growth of real estate market demand is obviously limited, and in the long run, the sales scale of the industry may gradually enter the downward channel.

It is precisely because of the above reasons that some housing enterprises in order to avoid changes in the psychology of buyers due to the adjustment of house prices in the later stage, they also spontaneously call buyers, and buying a house has a risk of profit and loss.

Previously, Shenzhen's popular red disk - Shenzhen Midtown Announcement said that as a market behavior, the sale and purchase of commercial housing will inevitably produce market risks due to market fluctuations or policy changes. Buyers should fully consider the market risks that may arise from the purchase of a house (such as the rise and fall of house prices), and the profits and losses caused by the rise and fall of house prices are borne by the buyer. Before signing the subscription letter, supplementary agreement, sale and purchase contract and other information, please fully consider the possible and generated risks (such as the rise and fall of house prices) of the real estate of the purchase project, please consider carefully before trading.

Housing enterprises "stable" word is the head

Recently, the Department of Housing and Urban-Rural Development of Guangdong Province issued the "Guangdong Provincial Commodity Housing Transaction Risk Tips" pointing out that it is a risk for housing enterprises to only sign offline commercial housing sales contracts and not sign online in a timely manner. It is a risk to sell commercial housing in the name of a one-time payment, group purchase fee, deposit against the purchase price, etc., which is significantly lower than the market price. The sale of commercial housing by means of principal-back sales or disguised return-to-capital sales, crowdfunding to buy houses, rent-for-sale, property leaseback, after-sale charter or disguised sale after-sale charter is a risk.

In addition to Guangdong, Tianjin, Hangzhou, Huzhou, Heyuan, Jiangxi Yichun and other places have also issued documents to remind the risk of buying a house. The reason for this is that recently, a number of housing companies have reported negative news.

At the same time, affected by many factors such as expectations and policy adjustments, the capital chain of many housing enterprises is facing a long period of repair. This also allowed Moody's to adjust the ratings of some real estate companies, including Jiayuan Group, Zhongnan Construction, Guangzhou R&F, Sunshine City, Greenland Holdings, China Aoyuan, Kaisa, Jinlun Tiandi, etc.

Specifically, Moody's downgraded the family rating of Xinli Holdings to "Ca", with a negative outlook; downgraded the family rating of Sunshine City from "B1" to "B2"; Guangzhou R&F downgraded to B3, and R&F Hong Kong downgraded to Caa1, with negative prospects. S&P downgraded Zhongnan Construction's long-term issuer rating to "B" and Fitch downgraded its default rating for long-term foreign currency issuers from "CCC-" to "RD" (restrictive default).

Although the default of housing enterprises and other issues are only an isolated phenomenon, the overall debt risk of housing enterprises can be controlled, but it also has to make other housing enterprises more alarm bells sound to ensure the safety of the capital chain.

"The real estate market has maintained double-digit growth over the past many years, which is not the norm. Under the new normal, real estate has returned to the people's livelihood industry. Recently, at the business exchange meeting held by Vanke, Yu Liang, chairman of the board of directors of Vanke, admitted that the industry winter is coming, and all enterprises will be cold. At any given time, security is more important than growth, and capacity is more important than scale.

Indeed, affected by the "three red lines" and "two concentrations" and other leverage reduction policies, housing enterprises have opened a difficult road to reduce leverage. According to data from the Bureau of Statistics, the growth rate of funds in place for housing enterprises has decreased year-on-year for four consecutive months, and the year-on-year decline in domestic loans from January to September has further expanded to 8.4%.

Zou Lan, director of the Financial Market Department of Chinese Min bank, said at the central bank's third-quarter financial statistics press conference a few days ago that house prices in a few cities rose too fast, personal housing loans were subject to some constraints, and the rate of house price rise was suppressed. After house prices stabilize, the supply and demand relationship of housing loans in these cities will also return to normal. Recently, the risk exposure of individual large housing enterprises, the risk appetite of financial institutions for the real estate industry has decreased significantly, there has been a consistent contraction behavior, and the growth rate of real estate development loans has declined significantly, which is a normal market phenomenon.

Yu Liang said that de-financialization and leverage reduction are the norms for the development of the real estate industry. However, in the context of the previous long-term use of high-leverage expansion, this transformation of the real estate industry is naturally accompanied by pain, and the industry has been impacted in the short term, but in the long run, real estate companies that insist on doing a good job in products and good services still have opportunities.

In the fourth quarter, the funds of housing enterprises may be eased. Pan Gongsheng, deputy governor of Chinese Min Bank and director of the State Administration of Foreign Exchange, said at the 2021 Financial Street Forum a few days ago that there has been a little fluctuation in China's real estate market and related financial markets recently, which is the stress response of market entities after the default of individual enterprises. Under the guidance of the expectations of the financial management department, the excessive contraction of risk appetite of financial institutions and financial markets has been gradually corrected, and the financing behavior and financial market prices are gradually returning to normal.

Accelerate the pilot of the long-term mechanism of housing and not speculation

On October 23, in order to actively and steadily promote real estate tax legislation and reform, guide the rational consumption of housing and the conservation and intensive utilization of land resources, and promote the stable and healthy development of the real estate market, the 31st session of the Standing Committee of the 13th National People's Congress decided to authorize the State Council to carry out pilot work on real estate tax reform in some areas.

The reform idea is clear, that is, the State Council formulates specific measures for the pilot real estate tax, and the people's government of the pilot area formulates specific implementation rules. The pilot period is five years, calculated from the date of issuance of the State Council Pilot Measures. The targets of taxation in the pilot areas are all kinds of real estate such as residential and non-residential use, excluding rural homesteads owned by law and their residences, and the land use rights holders and house owners are taxpayers of real estate tax.

Industry insiders said that at present, the real estate tax has been deliberated by the Standing Committee of the National People's Congress, and the State Council has been authorized to carry out the pilot work of real estate tax reform in some areas, indicating that the real estate tax has entered a substantive operation link, and it is only a matter of time before the boots of the real estate tax are finally landed. Its fundamental purpose is to strictly implement the "housing and not speculation" and increase the cost of the ownership link.

Under the "housing is not speculated", increase the cost of speculation and reduce the level of leverage. In fact, not only housing enterprises need to reduce leverage, but individuals also need to reduce leverage.

Chinese Min bank's financial statistics for the third quarter of 2021 show that in the first half of this year, China's macro leverage ratio was 274.9%, 4.5 percentage points lower than the end of the previous year, of which the leverage ratio of the household sector fell by 0.4 percentage points to 72.1%.

According to the "China Financial Stability Report 2021", the current excessive growth of debt in China's household sector has been effectively curbed. From the perspective of debt growth, the debt growth rate of China's household sector has generally slowed down since 2018, and the debt structure of the household sector is also continuously optimized. However, from an international perspective, data released by the Bank for International Settlements shows that at the end of 2019, the average leverage ratio of the household sector in all statistical countries was 61.6%, 73.5% in advanced economies and 43.1% in emerging market economies. At present, the leverage ratio of China's household sector is lower than the international average, but higher than the average level of emerging market economies.

"The impact of the pilot on real estate sales is limited." Zhu Jin, chief analyst of CITIC Construction Investment Real Estate, said that real estate tax, as an important part of tax reform and long-term real estate mechanism, is launched in the context of the further deepening of the current real estate market regulation, which is more signaling significance. He believes that the establishment of a long-term mechanism for the real estate market with real estate tax as one of the characteristics will help the industry to survive the fittest and further concentrate resources to high-quality enterprises.

For the market impact, Zhu Jin said that the relevant person in charge of the Banking and Insurance Regulatory Commission revealed that more than 90% of the personal housing loans of China's banks are first-home loans, and the market has obvious characteristics of just demand. Therefore, he believes that the implementation of the real estate tax reform pilot has a significant impact on speculative house purchases, but the regulation in the past few years has reduced the proportion of speculative house purchases to a certain extent, and the overall impact on sales is limited.

Yang Kewei believes that the third- and fourth-tier cities that have previously had market demand and purchasing power are obviously overdrawn may face downward pressure. "The demand for travel and real estate may have a significant decline, especially in those cities where eco-tourism resources are not abundant, the market may face greater downward pressure, and the transaction price may continue to decline."