Abstract

Why the real estate sales are not smooth and the house prices are so bright.

Through combing, we found thatThe decisive factor of house price is the value of commercial housing, and the decisive factor of value is the discount of future rent. Therefore, rent and discount rate are the two most critical and direct factors that affect house prices.Other factors such as location, economic growth, interest rate, land policy and land price are indirect factors that affect house prices by affecting rent and discount rate.

In fact, although the epidemic has curbed residents' demand for purchases in the short term and even exacerbated downward pressure on the economy, it has affected expectations of future rents (investors generally see a deviation between rising house prices and falling rents). However, loose monetary policy (affecting the decline of the discount rate) forms a support for short-term house prices, especially in areas with obvious geographical advantages (scarcity of lots). The downward pressure and motivation of house prices are weaker, and even rise instead of falling.

Take the first-tier city Shenzhen as an example, since 2017, the relationship between house prices and rents in Shenzhen has changed from a weak positive correlation to a significant negative correlation, that is, the correlation coefficient has changed from 0.29 to-0.72.This also explains that the property of house price investment in first-tier cities is stronger and more sensitive to interest rates. Affected by the COVID-19 epidemic, the economy is generally declining, and the downward trend in rents is obvious, but the downward interest rates have supported house prices.

How to understand the correlation between house prices and all kinds of assets

From the analysis of the correlation between house prices and major domestic assets, we have drawn several very important conclusions:

The main results are as follows: (1) there is a negative correlation between house price and bond market (treasury bond yield), that is, a positive correlation with treasury bond yield. In other words, from a national point of view, housing prices in hundreds of cities are more closely related to the macro-economy (or more related to molecular-side rents). In fact, the macroeconomic trend is booming, and interest rates tend to rise, which go hand in hand with rising house prices.However, we find that there is a significant negative correlation between house prices and interest rates in first-tier cities (Beijing, Shanghai and Shenzhen). It is just the opposite of the national house price data. This means that real estate in first-tier cities is more investment-oriented (more sensitive to interest rates). No matter the price of new house or second-hand house has a stable negative correlation. In addition, improving the property of housing investment is stronger than the rigid demand for housing.

(2) the relationship between house price and stock price is also intriguing.The data show that there is a weak negative correlation between house prices and stock prices, indicating that there is a negative correlation between real estate and stocks, especially in first-tier cities after 2017 than in third and fourth tier cities.The same conclusion can be drawn from the deviation between house prices and stock prices.

(3) the relationship between house price and commodity price is very obvious.There is a significant positive correlation between the prices of flat glass and crude steel and house prices.

Allocation Strategy under the downturn of Real Estate Industry

Although global house prices are strong in the first quarter on the support of loose liquidity and rising land prices, looking forward, the continued warming of land prices may attract the attention of policy regulation, as the economy gradually recovers, the loose liquidity environment may appear marginal convergence. This means that the factors supporting house prices in the early stage may face weakening without the interference of other factors.The decline in the return on investment in house prices may increase the attractiveness of stock allocation.

As far as the industry is concerned, we have further sorted out the relative returns of various industries during the decline in house prices in history.The data show that no matter from the samples of different cities or the data of first-tier cities, food and beverage, non-bank finance and other industries tend to perform well, on the contrary, the overall performance of optional consumer industries such as automobiles, commerce and trade is low.

一、Strong house prices in the global real estate downturn

In the first quarter when the epidemic continued to ferment, there were many similar bottlenecks in the global real estate market.Stock prices generally fell back, and the sales market was in the doldrums. On the contrary, sales prices are strong, and some countries even show signs of continuous rise.

There has been a general correction in global real estate share prices so far this year.Share prices of global real estate developers performed well in 2019, especially as the s & p u.s. homebuilders index closed up 41% for the year, hitting a new high in 2012. However, this glorious moment did not last long. With the adjustment of the global stock market in 2020, real estate stocks in major countries and regions of the world generally showed a sharp correction.

Even if it is the leader in the stock game, the global real estate leading stocks are not immune, there have been varying degrees of decline.Considering that foreign listed real estate companies include a large number of real estate investment trust (REITs) companies, there are obvious differences between foreign real estate listed companies and A shares, and the overall comparability is poor. Therefore, this paper focuses on the listed companies with real estate development and management as the main business, and defines the top three market capitalization of the industry as the industry leader. The data show that unlike the general rise in share prices in 2019, the share prices of leading companies focused on real estate development and real estate services have fallen to varying degrees this year.

In contrast to the share price, the physical sales side is weaker.Among them(1) the Chinese market:From January to April, the cumulative area of real estate sales was-19.3% compared with the same period last year, narrowing the decline compared with the previous value, but still at an all-time low. At the same time, the growth rate of the area for sale has continued to be positive since February, indicating that the pressure on inventory digestion still exists.

(2) the United States market:From 2016 to 2019, the US market had an average of 2100 unique commercial real estate buyers per month. That number fell throughout the first quarter of 2020, with just 790 buyers in March. According to home sales data, the number of new home sales fell sharply to-9.5% in March from 10.8% in February, while the number of existing home sales fell sharply to 0.8% from 7.1% in February. Meanwhile, US housing starts fell at a record pace in April, with housing starts falling to their lowest level since February 2015.

(3) the UK market:Demand (browsing and querying on websites) fell by 40 per cent at the end of March, according to Zoopla. Among them, the demand for housing purchase and rental has dropped sharply.

与The weakening of the sales end at the physical level corresponds to the strength or even rebound of house prices.Among them(1) the Chinese market:From January to May, housing prices in 100 cities rose slightly from 2.93% to 2.99%, while real estate prices in first-tier cities rose slightly to 1.19% from 0.71% at the end of 2019.(2) the United States market:The year-on-year growth rate of 20 large and medium-sized cities in the S & P / CS house price index continued to rise to 3.38% from 2.85% at the end of last year to 3.92% at the end of the first quarter.(3) the UK market:Average house prices continued to rise from 1.41% in December 2019 to 3.72% in April.

二、How to understand the pricing factors of the real estate industry?

Why is the performance of house prices so bright in the downturn of sales in the real estate industry?Through combing, we find that the decisive factor of house price is the value of commercial housing, and the decisive factor of value is the discount of future rent. Therefore, rent and discount rate are the two most critical and direct factors that affect house prices. Other factors such as location, economic growth, interest rate, land policy and land price are indirect factors that affect house prices by affecting rent and discount rate.

In fact, although the epidemic has curbed residents' demand for purchases in the short term and even exacerbated downward pressure on the economy, it has affected expectations of future rents (investors generally see a deviation between rising house prices and falling rents). However, loose monetary policy (affecting the decline of the discount rate) forms a support for short-term house prices, especially in areas with obvious geographical advantages (scarcity of lots). The downward pressure and motivation of house prices are weaker, and even rise instead of falling.

1. The pricing factors of the stock real estate industry?

In the long run, in the real estate market, the market price of real estate should be equal to the discount of flow rent.We can simply use the formula P=R/I to estimate. Among them, the molecular terminal R represents a rent level, at which the demand for the use of property is equal to the supply of buildings. The denominator I represents the capitalization rate of real estate assets, that is, the ratio of rent to price, which is the current expected rate of return that investors are willing to hold real estate assets.

On the molecular side, location and economic growth are important factors that affect the rent, while the construction cost of new housing determines the lowest rent on the edge of the city.Drawing lessons from the analytical framework of DiPasquale & Wheaton (1996) (1) from the micro level, we divide the urban housing rent into three categories: the rent of agricultural land necessary to convert agricultural land into urban land, the rent of buildings located on the land and the location rent caused by transportation cost savings. Usually, the rents of agricultural land and buildings are relatively stable in different locations, but as they move away from the city center, the rents will gradually decrease with the increase of transportation costs, until they reach the edge of the city. The rent fell to the lowest point. (2) from a macro point of view, the change of rent in the property market is positively related to economic growth in the long run.

At the denominator end, the growth rate of urban population is an important factor in determining housing prices. The capitalization rate will not only vary with different locations at the same time, but also change with time in the same location.If a city is no longer expected to grow as a whole, its capitalization rate is the interest rate, and it is the same anywhere in the city; if there is spatial growth in the city (for example, due to population growth), the capitalization rate will be less than the interest rate, and will be different in different locations of the city. From the data in the chart below, we can also see that the ratio of house price to rent is much higher than that in the suburbs because the city center may bring more income opportunities and room for growth.

2. What are the pricing factors of the incremental real estate industry?

In the long run, in the real estate asset market, the market price of real estate should be equal to the replacement cost including land.Among them, land price is not only the most important part of the cost composition of house prices, but also the status of land transactions directly affects the supply of the real estate market, reflecting the expected changes of housing enterprises to the follow-up market. According to the data, the land premium rate of 100 large and medium-sized cities rose further to 15.81% in April from 15.25% in March, and the average floor price of land transactions rebounded sharply from-29.44% to 14.46%. The continued rise in short-term land prices also supports the room for house prices to fall.

3. How to understand the stock(property market)And increment(asset market)The connection?

There are two connections between the property market and the asset market: on the one hand, the rent level formed in the property market is the key factor that determines the demand for real estate assets, and the change in rent in the property market will immediately affect the demand for ownership in the asset market. On the other hand, if the amount of new construction increases and the supply of assets increases, it will not only reduce the price of the asset market, but also lower the rent in the property market.

Usually, the rent determined by the property market can be converted into the property price through the asset market. Then, these asset prices can lead to the formation of new development and construction volume, and then back to the property market, these new development and construction volume will form a new stock level. When the beginning level of the stock is the same as the end level, the property market and the asset market reach equilibrium.

三、How to understand the correlation between house prices and all kinds of assets?

From the comparison of the correlation between house prices and major domestic assets, the correlation with A shares is weak, the correlation with commodities is strong, and the bond bias is negatively related.We analyze it based on the relevant data from 2010 to 2020 and estimate it after excluding the trend factors with monthly frequency data. (1) House prices are generally positively correlated with commodities and interest rates, but negatively correlated with stocks, and (2) the correlation between house prices and interest rates is generally higher than that of stocks.

1. analysis of the correlation between house price and interest rate.

House price and interest rate: there is an obvious positive correlation between house price and interest rate, indicating that the impact of molecular macro-economy on house price is more significant. However, compared with the third-and fourth-tier cities, whether new or second-hand housing, there is an obvious negative correlation between housing prices and interest rates in Beijing, Shanghai, Shenzhen and other first-tier cities, and at the same time, housing prices are equal to the discounted future rent (P=R/I), which means that in the environment of economic downturn, the importance of real estate in first-tier cities to household investment and property preservation is increasing, and the investment attribute is more significant.

There is a significant negative correlation between house prices and interest rates in both new and second-hand cities such as Beijing, Shanghai, Shenzhen and other first-tier cities.Considering that among the housing transactions in first-tier cities, in addition to new houses, second-hand housing transactions are also very active, so will this difference in housing sources lead to changes in the correlation of different assets? We split the housing prices into new housing prices and second-hand housing prices, according to our estimates, in our selected samples of these cities, new houses show more investment attributes, while second-hand houses reflect more commodity attributes. Furthermore, we find that no matter second-hand housing or first-hand housing, housing prices in Beijing, Shanghai and Shenzhen show a significant negative correlation with interest rates, indicating that the investment attribute of real estate in first-tier cities is more obvious.

For the first-tier cities represented by Beijing, Shanghai and Shenzhen, the negative correlation between improved housing and interest rates is more significant.Considering the different properties of housing, we divide the housing area sold in Beijing, Shanghai and Shenzhen into three types: less than 90 square meters, 90 to 144 square meters, and more than 144 square meters. The data show that the correlation between the interest rate of residents with just demand housing below 90 square meters is weaker than that of 90-144 square meters and more than 144 square meters. In spite of this, the negative correlation between Beijing, Shanghai and Shenzhen and interest rates is still strong.

2. Analysis of the correlation between house prices and stocks.

House price and stock: House price is generally negatively correlated with domestic stock index, and the correlation is weaker than interest rate.From the perspective of asset allocation, when real estate sales slow and prices fall, incremental funds may pour into other types of assets such as stocks. From the perspective of historical performance, from 2014 to 2015, there was an obvious process of capital outflow from the real estate into the stock market, and then from the stock market back to the real estate. It is worth noting that after 2017, the overall correlation between house prices and stock assets in first-tier cities is higher. By further calculating the deviation of the asset allocation ratio of residents' allocation compared with the trend value, we find that the deviation degree of stocks and real estate is much higher than that of other types of assets, indicating that stocks and real estate are the main areas of residents' short-term asset allocation adjustment.

3. analysis of the correlation between house prices and commodities.

House price and commodity: there is a significant positive correlation between house price and commodity, and the demand cycle is the link between them.As the ballast stone of the domestic economy, through the linkage mechanism of the upstream and downstream industrial chain, there is no doubt about the role of real estate in promoting economic growth. As a result, when house prices pick up and property investment goes up, the pick-up in demand will also support the performance of commodities.

Although the correlation between second-hand housing prices and all kinds of industrial products is weaker than that of newly-built commercial housing, the link of demand cycle exists stably.The correlation between real estate prices and the year-on-year growth rate of all kinds of industrial products is further calculated. the data show that house prices are generally positively correlated with the changes of industrial products output, among which the correlation between flat glass and house prices is the highest, on the contrary, the correlation between copper, aluminum and house prices is weak.

Fourth, the impact of house price fluctuations on domestic assets.

We focus on reviewing the performance of assets in China in the cycle of falling and rising real estate prices since 2011, especially in first-tier cities: from the perspective of market performance:

In the falling cycle of house prices, bonds > stocks > industrial products, and in the rising cycle of house prices, industrial products > bonds > stocks. In the previous declines in house prices, interest rates have generally fallen and industrial products have generally closed down. On the contrary, during the period when house prices continued to rise, industrial products performed brightly and the stock market as a whole was relatively depressed. It is worth noting that after 2015, the negative correlation between house prices and interest rates in first-tier cities is becoming more and more obvious.

五、Supporting strategies under the downturn of the real estate industry

Although global house prices are strong in the first quarter on the support of loose liquidity and rising land prices, looking forward, the continued warming of land prices may attract the attention of policy regulation, as the economy gradually recovers, the loose liquidity environment may appear marginal convergence. This means that the factors supporting house prices in the early stage may face weakening without the interference of other factors. The decline in the return on investment in house prices may increase the attractiveness of stock allocation.

As far as the industry is concerned, we have further sorted out the relative earnings of various industries during the decline in house prices in history. The data show that no matter from the samples of different cities or the data of first-tier cities, food and beverage, non-bank finance and other industries tend to perform well, on the contrary, the overall performance of optional consumer industries such as automobiles, commerce and trade is low.