Real estate stocks have skyrocketed!
As of the morning close, A-shares continued to shrink and consolidate, and the real estate sector can be said to be dominating the market. Everbright, Jiabao, Tiandi Yuan, Yunnan City Investment, etc. went up and down. I love my family, China Merchants Shekou, CCCC Real Estate, Binjiang Group, Poly Development, Special Development Services, Tianbao Infrastructure, Nanguo Real Estate, and Daming City, etc., rose more than 5%.
So, what actually happened? According to the news, there are two major benefits circulating in the market:
First, according to the market, relevant departments are considering a plan to allow local governments across the country to buy existing housing units that have not yet been sold. The plan might allow banks to provide loans. It is important to note that similar plans have been distributed in several versions, but so far none have been officially confirmed.
Second, there is also news circulating today concerning the direction of interest rates: if the ECB cuts interest rates as scheduled, the Central Bank of China may cut interest rates in June. This is because interest rate cuts after the ECB may reduce the impact on the RMB exchange rate. Today, MLF remains stable in volume and price, but if interest rates are cut in the future, it will definitely benefit the real estate market.
Real estate stocks soared
Real estate stocks have gone crazy in early trading today. As of midday trading, there were four ups and downs in the real estate sector: Everbright, Jiabao, Tiandi Source, Yunnan City Investment, and I Love My Family. It is worth noting that an iconic stock, China Merchants Shekou, is also close to rising or falling. Poly and Vanke have also performed well. Real estate ETFs surged nearly 4%.
So what just happened? In early trading, there were two unconfirmed pieces of news circulating in the market.
First, according to news circulating in the market, the relevant departments are considering a plan to let local governments buy houses that have not yet been sold.
In fact, since the April 30 high-level meeting proposed “coordinated research to absorb existing real estate,” the market has looked forward to “relieving market pressure by collecting stored real estate by the government.” Moreover, in March, brokerage China made similar reports. Rumors at the time indicated that the relevant departments were already planning similar actions. However, up to now, there has been no official confirmation of this.
Second, there are also some expectations that fermentation will begin in the direction of breath. On May 15, in order to maintain reasonable and abundant liquidity in the banking system, the central bank launched a 7-day reverse repurchase of 2 billion yuan and a 1-year MLF operation of 125 billion yuan. The winning bid interest rates were the same as before, at 1.8% and 2.5% respectively. Due to a reverse repurchase of 2 billion yuan and an MLF of 125 billion yuan due to the expiration of the MLF on the same day, MLF achieved an “equal price” renewal this month. Wen Bin, chief economist at Minsheng Bank, said that the interest rate reduction window still needs to be moved backwards. At this point, an expectation was also released. Some outside analysts believe that if the ECB cuts interest rates as scheduled, the Central Bank of China may cut interest rates in June. Because, cutting interest rates after the ECB may reduce the impact on the RMB exchange rate. Moreover, the reasons for cutting interest rates in China (stimulating consumption, demand for loans, and issuing treasury bonds) are quite adequate. If interest rates fall as scheduled, it is also beneficial to the recovery of the real estate market.
How likely is it?
So, how likely is it to collect a storage room?
According to data from the 7th population census, China's existing housing area at the end of 2020 was about 29.5 billion square meters. In addition to the completion area of 860 million square meters and 1.0 billion square meters of commercial housing in 2021 and 2022, respectively, by the end of 2022, China's existing housing area was about 31.3 billion square meters. Meanwhile, according to previous data from the Ministry of Housing and Construction, our country's housing vacancy rate is about 15%.
According to estimates by Tianfeng Securities, the area of vacant second-hand housing at the end of 2022 was about 4.7 billion square meters. Considering that new demand in recent years is also absorbing the existing vacant housing stock, it is estimated that the vacant second-hand housing area in March 2024 will be about 4.4 billion square meters. Even without considering the area of land to be developed by housing enterprises, only considering the broad inventory of new homes (homes that have started construction and not sold by housing enterprises) and vacant second-hand housing that can become an effective supply, the current general housing inventory is 2.63 billion square meters. Among them, the general inventory of new homes is about 1.53 billion square meters (assuming a sellable ratio of 98%); the effective vacant second-hand housing area is about 1.1 billion square meters (assuming that only 25% of vacant second-hand housing can become supply).
Tianfeng Securities believes that the government's acquisition of existing housing stock can theoretically reduce inventory levels, ease downward pressure on the real estate market, and achieve some of the goals of the three major projects by changing the use to affordable housing. However, in order to play the role of a trusteeship market, it is necessary to reduce the pressure of the residential removal cycle to less than 18 months. However, in order to reduce the pressure of the housing removal cycle to less than 18 months, it is necessary to remove about 7.4 months of inventory. This corresponds to 770 million square meters of sales, accounting for about 29% of the general housing inventory.
Looking at the real estate sector as a whole, there are actually some positive signs. According to data from Guolian Securities, from 2023 to the first quarter of 2024, the return on net assets of housing enterprises bottomed out and stabilized. The resilience of central state-owned enterprises showed that the decline in net asset income in 2023 narrowed to -1.17%, which was corrected in the first quarter of 2024. The performance of central state-owned enterprises was superior to other companies. The asset structure continued to be optimized, and the sector's balance ratio fell to 75.98% in 2023. Central state-owned enterprises led stable leverage, and fell further to 75.69% in the first quarter of 2024. In terms of net debt ratio, the increase in the 2023 sector was 2.69%, which is 5.45% narrower than the 2022 increase. The net debt ratio of central state-owned enterprises declined slightly. The decline in the share of advance payments has increased cash risk. Central state-owned enterprises have performed well, and strategies to optimize the inventory structure have shown results, and are superior to other housing enterprises in controlling the share of inventory.
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