Lian Pingwen. Since the convening of the first financial work conference, the first and local housing regulatory departments have intensively introduced policies in order to guide the rapid release of housing demand, the effective control of real estate enterprise risks and the expansion of real estate investment. Since the introduction of support policies, sales improvement has not lasted long, and the risks of real estate companies have further expanded concerns. So how effective is the policy, and how should the policy be implemented in the future to improve the effect of policy implementation?
First, the current downward pressure on the real estate market is still not small
Since the end of October 2023, the ** Financial Work Conference has been held, and the real estate policies of various ministries and commissions and local related fields have been introduced again. The central bank focuses on real estate financial risks, and proposes to guide financial institutions to maintain the stability of key financing channels such as real estate credit and bonds, and meet the reasonable financing needs of real estate enterprises under different ownership systems without discrimination. State-owned commercial banks and joint-stock banks convened various real estate enterprises to discuss the next step to support the financing plan of real estate enterprises. The China Securities Regulatory Commission stated that it will maintain the overall stability of the financing channels for real estate enterprises' stocks and bonds, and steadily resolve the risk of default of large real estate enterprises' bonds. Chengdu has canceled the double limit policy of "limited house price and limited land price" in the past three years and the circuit breaker mechanism for land auctions in the past seven years, returning to the model of the highest price. Nanjing, Guangzhou and other places continue to increase the amount of provident fund loans and expand preferential policies for house purchases.
At present, the real estate market is still very difficult, and the slowdown in sales continues. By the end of 2023, the sales area of commercial housing will be 111735 million square meters, a decrease of 8 from the previous year5%；The sales of commercial buildings 116622 billion yuan, down by 65%。The problem of high inventory has forced developers to take the form of price reduction** to recoup funds, but there is still a large gap between sales performance and target, and the sales of some leading real estate companies will decline by more than 40% year-on-year in 2023. Housing sales** are declining unabated. In December 2023, housing prices in all tiers of cities decreased month-on-month, with 62 new housing cities and 70 second-hand housing cities in 70 large and medium-sized cities. There are bright spots in the land market, but the overall situation is still sluggish. After the price limit was lifted, the auction premium rate of individual land plots in Hefei, Jinan, Chengdu and other areas exceeded 30%, and most of the remaining land auction results were similar to before, and the overall premium rate still hovered at a multi-year low. The debt de-escalation of real estate enterprises has not been smooth, and some large real estate companies, including Vanke, have been downgraded by international credit rating agencies such as Moody's or have their outlook ratings. The decline in real estate development investment continued, with a cumulative year-on-year decline of 9 in 20236%, the growth rate has been negative for the 20th consecutive month.
Based on the data of the past two to three months, although the housing support policy has been increased again, and the regulatory authorities are determined to do so, the overall data performance has not improved significantly, and the decline of some indicators may expand.
Second, the current situation of the real estate market is caused by the resonance of multiple factors
The mainstream view of the market is that the significant slowdown in medium- and long-term demand is the main factor leading to the current market weakness, including the slowdown in income growth, the aging of the population, the slowdown in urbanization, and the national housing supply and demand match is close to saturation or oversupply. Another view is that the current short-term macroeconomic growth, market confidence (including real estate and financial investment), exchange rate depreciation and other factors have put pressure on housing sales, and more patience is needed to make all-round changes.
In the medium to long term, the shrinking base of potential home buyers, the slowdown in urbanization and the acceleration of aging will constrain real estate investment.
In the short term, the purchasing power of the current household sector may not be as good as in similar cycles in the past. After three years of the impact of the epidemic, the growth rate of disposable income of urban residents is only about 5%, which is significantly slower than the growth rate of residents' income of 8%-15% in the past, which is one of the important factors inhibiting the expansion of housing demand. Due to the continuous depreciation of the renminbi during the year, the volatility of ** and other financial investments, the low rate of return of traditional wealth management products, and the rising uncertainty of property income have also produced negative sentiment on the purchase of houses, and the prepayment of loans by some existing mortgage holders since the beginning of the year is a symptomatic reaction to this situation.
The lack of confidence in the current round of the housing market is unprecedented, and buyers do not seem to be in a hurry to buy a home.
So is it true that demand for properties has dried up? The answer is no. Since July 2023, the growth rate of the area and value of existing commercial housing sales across the country has gradually rebounded from the low point of the year, and as of the end of November 2023, the annualized growth rate of the area and value of existing home sales were 74% and 112%, the growth rate of the two roughly returned to the level of the fourth quarter of 2017; Correspondingly, the sales area and growth rate of off-plan housing were **226% and 15At 5%, the main drag on property sales is off-the-plan, and the proportion of existing home sales has rebounded to the highest level since late 2017. It can be said that the policy of "guaranteeing the delivery of buildings" has actually played a role in guaranteeing and promoting housing sales.
Therefore, the core problem of the overall downturn in the real estate market may not be just due to the slowdown in demand, but more likely to come from the supply side, that is, real estate developers. Therefore, the next step is not only to continue to release demand, but also to solve the problem of real estate enterprises.
Third, the risk of real estate enterprises should not be underestimated
The risk of the real estate market mainly comes from real estate enterprises, and the risk of real estate enterprises mainly comes from liquidity risk. Affected by factors such as the weakening of commercial housing sales and the limited financing of some real estate enterprises, the cash flow pressure of real estate enterprises has generally increased. In the 2023 semi-annual report, more than half of the listed real estate companies have a cash short-term debt ratio of less than 1, including some companies with sales scale ranked in the top 30 in the country, and there is also a serious shortage of funds. In late November, Moody's, an internationally renowned rating agency, downgraded Vanke's issuer rating by two notches to BAA3 and downgraded its rating outlook to negative, mainly citing concerns about the company's liquidity indicators.
The past experience of domestic and foreign real estate companies shows that once the real estate market naturally enters a downward cycle, even relatively stable companies may be forced to default on debts or have difficulty in paying interest due to temporary capital turnover problems, which means that most real estate companies have insufficient ability to resist risks.
Real estate developers have received less financial support. Although since the second half of 2022, commercial banks have seen a phased improvement in real estate enterprise loans, driven by the special loans of "guaranteed delivery of buildings" and the policy of "three arrows" in finance. However, the financing difficulties of some small and medium-sized real estate enterprises with relatively poor qualifications have not been effectively solved. By the fourth quarter of 2023, the momentum of continuous reduction in off-balance sheet financing of real estate companies has not changed, and a number of listed real estate companies have been informed by the exchange that they are certain or have delisting risks. The private financing capacity of real estate enterprises is also relatively insufficient, and in 2023, the cumulative self-raised funds of real estate enterprises will decrease by 19 percent year-on-year1%。
In order to mitigate risks, most listed real estate companies have to take the initiative to reduce their balance sheets. Comprehensive analysis of the 2020 annual report and 2023 semi-annual report financial statements, and select typical developers among the listed companies of central state-owned enterprises (Class A), mixed ownership (Class B) and private enterprises (Class C). It was observed that the overall asset-liability ratio and net debt ratio of the sample real estate enterprises have decreased, and the average asset-liability ratio has decreased by about 3 percentage points, indicating that major developers have adopted the method of reducing costs and increasing efficiency to control risks. However, the specific structure of assets and liabilities of Class A companies and Class B and C developers has been significantly differentiated in recent years. The balance sheets of Class A companies generally show a steady pace of expansion, and the annualized growth rate of total assets and liabilities is basically maintained at about 5%; The index of Class B and C companies fell by about 10%, which is a typical "deleveraging" behavior. It is further observed that in the balance sheets of the latter two types of companies, the decline is mainly due to the reduction of short-term current liabilities, with an average decline of about 20%, which indicates that the short-term financing ability of these real estate enterprises has decreased significantly or deliberately reduces the debt. For Class B and C companies, since the proportion of current liabilities to total liabilities is roughly 50% to 85%, the lack of short-term financing capacity will largely drag down the expansion of real estate enterprises' asset projects, and then form a substantial asset impairment in the last year and a half.
In such a situation, it is difficult to expect a significant upturn in land auctions or real estate investment in the short term. As of the end of the second quarter of 2023, the inventory scale of Class B companies and Class C companies decreased by 20% year-on-year, while the two-year average growth rate of the inventory scale of Class A companies was 2%, thanks to the substantial support of policies, the growth rate of short-term current liabilities was close to about 10%, and it is a company that has steadily increased its land assets. This also corresponds to the fact that a number of central and state-owned enterprises actively participated in the land auction market during the year, while most private enterprises and mixed-ownership enterprises purchased less land, not because the latter were unwilling to participate in the auction, but because the inventory ratio of some Class B and C companies to total assets has dropped to a very low level of less than 40% or even about 30%, and there is a lack of sufficient financing support.
At present, the pressure on real estate companies to repay principal and interest remains high. The average asset-liability ratio of more than 100 A-share listed real estate companies in the mainland is close to 80%, with an annual fluctuation range of 1 2 percentage points, and their long-term debt pressure is very high. It is estimated that more than 15% of the actual funds in place of real estate enterprises at the end of 2023 will be used for interest expenses, while before the end of 2018, this indicator is within 10%, and the proportion of interest expenses in funds in place has increased rapidly during the three years of the epidemic. At the same time, as mentioned above, the situation of non-bank off-balance sheet financing of real estate enterprises is more difficult than that of on-balance sheet bank credit, and the pressure on debt and interest repayment may be greater in the future. In the first three quarters of 2023, commercial banks added 480 billion yuan in new development loans, which means that even for enterprises on the list of commercial banks, the scale of their on-balance sheet net financing increment is not as large as the "visible" reduction in the balance of non-bank off-balance sheet financing. At present, it is difficult to basically match the scale of funds on the balance sheet of banks such as "guaranteed delivery of buildings" to support real estate enterprises and the capital demand of real estate enterprises.
Fourth, it is recommended to increase policy support for real estate enterprises
Due to the great changes in the medium and long-term supply and demand structure of the domestic real estate market, the first financial work conference will put the prevention and resolution of real estate financial risks in a more important position. Combined with the analysis and judgment of the risks of real estate enterprises, it is recommended to introduce relevant policies in the following five aspects, with the goal of improving the liquidity of real estate enterprises, helping the real estate market to properly resolve risks, and creating favorable conditions for the stable development of the property market.
The first is to maintain reasonable financing support for high-quality real estate enterprises. It is suggested that commercial banks should speed up the approval and issuance of development loans, and appropriately increase the proportion of development loans in the loan balance to meet the reasonable capital needs of high-quality real estate enterprises. Commercial banks should seize the opportunity of the recovery cycle of the real estate market, provide liquidity guarantee for high-quality developers, increase high-quality land reserve resources, and promote the smooth progress of land acquisition and real estate projects by capable developers. Encourage and promote large and medium-sized commercial banks to increase the provision of intentional comprehensive credit lines, and effectively implement the agreements of intent that have been signed with real estate enterprises. It is suggested that in the next 12 months, about 2 trillion yuan of new loans to banks and enterprises will be added to promote the growth rate of development loans in line with the overall loan growth rate of financial institutions.
The second is to expand the scale of special loans, M&A loans and re-loans for "guaranteed delivery of buildings". In view of the fact that the demand for housing purchase at this stage is more focused on the field of existing housing, it is recommended to expand the scale of special loans for "guaranteed delivery of buildings", and invest about 1,000 billion yuan in related loans in the next 12 months to meet the delivery needs of various real estate enterprises. It is suggested that commercial banks should moderately increase their relending plans for real estate enterprises and use lower relending interest rates to reduce the financing costs of real estate enterprises. It is suggested that in 2024, the first bank will increase the PSL amount of mortgage supplementary loans to policy financial institutions to reach 300 billion yuan to 400 billion yuan, and support the "three major projects" of affordable housing, urban village renovation and "level-emergency dual-use" public infrastructure construction.
The third is to increase efforts to create a relaxed non-bank financial environment for real estate enterprises, and innovatively make good use of the "housing financial support policy".
2. The third arrow". Increase the disposal of non-performing real estate loans, and innovate transitional financial instruments for real estate enterprises. Direct financial support can be increased for real estate enterprises with relatively good qualifications, and it is recommended to increase the issuance of mainland credit bonds by more than 600 billion yuan in the next 12 months. For real estate companies with relatively difficult operation and better stock assets, they can consider increasing local poverty relief and introducing asset management companies to alleviate the short-term cash flow and debt pressure of these real estate enterprises, and reduce their liquidity risk and debt default risk. It is recommended to expand the scope of equity financing for real estate-related enterprises and related industries (including the construction industry or industries closely connected with the upstream and downstream of real estate construction), do a good job in restarting equity financing for well-run real estate enterprises, and effectively give full play to the direct financing function of the capital market.
Fourth, explore the establishment of debt relief for Chinese real estate enterprises to deal with the disposal of medium and long-term stock assets of real estate enterprises. Policies need to start from the medium and long term, and make systematic and forward-looking preparations for the "debt reduction" of real estate enterprises. Considering the high probability of a cyclical slowdown in the external economy in the next 12 months (even if there is no systemic risk), it may have an impact on the overall loan quality of commercial banks, and large state-owned banks may face pressure on the disposal of various types of non-performing loans, including non-performing loans of real estate enterprises, that is, the risk of the real industry may be transmitted to the large state-owned banks. As of the end of the third quarter of 2023, with reference to the balance of development loans of commercial banks and enterprises (13.).17 trillion), credit bond balance (175 trillion), the balance of Chinese-funded US dollar bonds (105 trillion), trust balance (105 trillion) latest data, assuming that the above four types of stock debt corresponding to the possible potential risk rate of %), the ** scale is 1About 2 trillion yuan is appropriate. It is suggested that the government should contribute 300 billion yuan as the initial capital, and the rest can be invested and participated by policy banks, large state-owned commercial banks, insurance companies, AMC asset management companies, etc., so as to take precautions, systematically, and deal with real estate financial risks in the medium and long term.
Fifth, to strengthen and improve the regulatory system for pre-sale funds of commercial housing, the key is that local supervision is timely and effective in place. In view of the misappropriation of funds by some real estate enterprises in violation of regulations, and the situation of unfinished business and running away, commercial banks and other financial institutions are confused about whether to increase credit resources for real estate projects, and their willingness to take the initiative to increase financial resources has declined. Therefore, at the same time of "wide credit" + "wide credit", it is necessary to ensure the effectiveness of the regulatory system, especially to strengthen the supervision of pre-sale funds, improve the transparency of real estate enterprise construction, promote real estate development enterprises to complete project development and completion with quality and quantity, alleviate the contradiction between housing supply and demand, and promote the steady and healthy development of the real estate industry.
5. The downward pressure on the real estate market may weaken in 2024
Looking ahead to the real estate market in 2024, there are both opportunities and challenges. With the gradual improvement of the macro environment, the formation of expectations of RMB exchange rate appreciation and the effective support of policies for the capital market, some of the gloom hovering over China's economy is expected to gradually dissipate or fade. Whether the real estate market can improve in 2024 mainly depends on two points: first, whether the policy can effectively improve the liquidity risk of real estate enterprises, only when the risk of real estate enterprises is effectively controlled, the market has the conditions to stabilize; The second is whether real estate investment can rebound, which represents whether the expectations of real estate companies for future market judgment have changed. It can be seen that the behavior and status of real estate companies are the key to whether the market can do well in 2024. To a large extent, the improvement of the state of real estate enterprises requires a reasonable increase in liquidity.
Property sales are likely to stabilize gradually in 2024, while investment declines narrow. Taking history as a mirror, under the relatively loose housing purchase policy, the supply-side financial support has increased significantly, the "guaranteed delivery" project has accelerated, the confidence of home buyers in the delivery of real estate buildings has been restored, and the demand has been gradually released over time. Considering that the end of the first quarter of 2023 is a period of concentrated demand release after the epidemic is released, the high base period factors may make the first quarter of 2024 the low point of the year (including housing prices, investment and other indicators will also be affected by this). The sales growth rate is expected to pick up gradually from the second quarter, and the sales decline by the end of the third quarter may be better than the level at the end of 2023, and the pace of recovery is expected to further accelerate in the fourth quarter. It is expected that the annual sales area growth rate may be about -1%, and the sales amount may decline by about -5% due to the price reduction of real estate companies, but the overall ** rate will be significantly narrower than that at the end of 2023.
The momentum for house prices to continue** is likely to wane. From the perspective of the new housing market, due to factors such as the high land auction** in 2023 and the low inventory of some existing houses (the decommissioning cycle of commercial housing is less than 1 year), the housing prices in some large cities such as Shanghai, Hangzhou, and Hefei may be the first to strengthen earlier than the rest of the country. It is expected that by the end of the year, the growth rate of new houses** will be around 0. In the second-hand housing market, it is expected that the middle of the second quarter will be the period of the largest decline in house prices in the middle of the year, but there may be a "V" shaped reversal in the operation thereafter, and the annual decline may converge to about 2%, which is 1 2 percentage points narrower than that in 2023.
With the support of housing finance policies, the cash flow situation of real estate developers has been improved, and the stabilization of sales and the increase in advance receipts are conducive to alleviating the problem of capital payment of some real estate enterprises, especially the probability of debt default of private real estate enterprises has decreased, which will facilitate the expansion of investment by real estate enterprises. In view of the loosening of land auction rules in more large cities, real estate enterprises as a whole are expected to free up more funds to enter the land market and increase the acquisition reserve of high-quality land, including more private real estate enterprises to participate in the land market; The prospects of the first- and second-tier land markets are improving, and land transactions in some third-tier cities close to key urban agglomerations are also expected to be favored by the market. It is expected that the "guaranteed delivery of buildings" and the three major engineering projects will be accelerated, which will promote the growth rate of investment in construction and installation projects of real estate enterprises to stop falling and stabilize, and it is expected that the decline in real estate investment may converge to about 6% in 2024.