Source: real estate, work harder.
Author: Citic Construction Investment Zhu Jin

On January 5, the central bank and the Bancassurance Regulatory Commission issued a notice deciding to establish the first set of dynamic adjustment mechanism of housing loan interest rate policy. Cities with new commercial housing sales prices falling month-on-month and year-on-year for three consecutive months can periodically maintain, reduce or cancel the lower limit of the local first housing loan interest rate policy.

The long-term mechanism of the first home loan interest rate will be further improved to better support the demand for rigid housing. As early as September 29, 2022, the central bank announced that for the cities where the sales prices of newly-built commercial housing declined continuously from June to August in 2022, before the end of 2022, it is independently decided to maintain, lower or cancel the interest rate floor of the local commercial personal housing loan in stages, and the lower limit of the commercial personal housing loan interest rate policy for the second housing shall be implemented in accordance with the current regulations.

The establishment of the long-term mechanism of the first home loan interest rate is a further improvement of the policy in September. Starting from the fourth quarter of 2022, new house prices in the first three months of each quarter are dynamically evaluated at the end of each quarter. If the same month has declined for three consecutive months, the lower limit of the interest rate of the first home loan can be relaxed in stages from the next quarter. If the price of the new house rises for three consecutive months during the follow-up evaluation period, the price of the new house will rise for three consecutive months. The lower limit of the national loan interest rate will be restored. Linking the mortgage interest rate to the trend of housing prices and making dynamic adjustments will help local governments to make full use of the policy toolbox to better support the demand for rigid housing and form a long-term mechanism to support the stable and healthy development of the real estate market.

The number of qualified cities is further expanded, and the market vitality is expected to be further activated. According to our statistics, 38 of the 70 large and medium-sized cities are eligible, an increase of 15 over September. According to our calculation in September, the proportion of commercial housing sales in qualified cities in 2021 is about 50% to 60%. After the introduction of this policy, the proportion is expected to further expand, the market vitality will be further activated, and sales in 2023 are expected to become regular in the fourth quarter compared with the same period last year.

The average interest rate on first-home loans in key cities fell to 4.09% in December, an all-time low. According to the statistics of KE Holdings Inc. Research Institute, the average first-home loan interest rate in 103 key cities was 4.09% in December 2022, unchanged from the previous month, down 155 bp from the same period last year, a record low. Among them, the average rate of first-tier cities is 4.60%, and that of second-tier and third-and fourth-tier cities is 4.07%. The year-on-year decline of first-tier cities is the smallest, only 69pb, while that of third-and fourth-tier cities is 164bp. The first set of interest rates in 19 cities have fallen below 4.0%, including six second-tier cities, 13 third-and fourth-tier cities, and only nine cities, including first-tier cities, have interest rates higher than 4.1%.

Investment suggestion: the establishment of the long-term mechanism of the first home interest rate will help local governments to make full use of the toolbox of "policy due to the city". Ni Hong, minister of housing and construction, said that strong support should be given to the purchase of the first home, the down payment ratio and the interest rate of the first home should be reduced, and reasonable support should be given to those who buy the second home. It is expected that the demand-side policy space will continue to open in the future.

We are firmly optimistic about the sales recovery under the "three high housing enterprises", credit repair and policy relaxation, and recommend A shares:$China Vanke Co.,Ltd. (000002.SZ)$、$Poly Developments and Holdings Group (600048.SH)$、$Gemdale Corporation (600383.SH)$、$Xiamen C&D Inc. (600153.SH)$、$Zhuhai Huafa Properties (600325.SH)$、$Hangzhou Binjiang Real Estate Group (002244.SZ)$, Hong Kong stocks:$China Overseas Land & Investment (00688.HK)$、$C&D INTL GROUP (01908.HK)$、$YUEXIU PROPERTY (00123.HK)$、$GREENTOWN CHINA (03900.HK)$、$COUNTRY GARDEN (02007.HK)$。

In the post-epidemic era, the profits and valuations of commercial and property management enterprises are expected to be repaired, and A shares are recommended:$Seazen Holdings (601155.SH)$、$China Merchants Shekou Industrial Zone Holdings (001979.SZ)$, Hong Kong stocks:$LONGFOR GROUP (00960.HK)$、$CHINA RES LAND (01109.HK)$、$China Resources Mixc Lifestyle Services (01209.HK)$、$Country Garden Services Holdings (06098.HK)$、$ONEWO (02602.HK)$. We are also optimistic about the agent construction companies that have the ability to participate in the disposal of bad projects.$GREENTOWN MANAGEMENT HOLDINGS COMPANY LIMITED (09979.HK)$。

Risk Tips:

The loan interest rate dynamic adjustment mechanism is limited to the first home, the second home interest rate is still implemented in accordance with the original provisions, the coverage is limited, and the stimulating effect on the market remains to be tested. At present, housing enterprises are still facing greater pressure, on the one hand, the performance, under the influence of the current epidemic, the construction progress is greatly affected, and the carry-over of high-margin projects may be lower than expected, resulting in a further decline in gross profit margin for the whole year. In addition, due to the downward market, there may be impairment risk, on the other hand, sales, the market is still continuing to decline, while the epidemic may lead to the pace of the push will not be as expected, the company has maintained a high intensity of land acquisition in the early stage, if the market worsens, it may lead to the expected price at the time of land acquisition can not be realized, thus further affecting the follow-up performance.

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