Centralized Management system of Real Estate loans

What is it? What are the effects?

Recently, the Central Bank and the Banking and Insurance Regulatory Commission issued the "Management system of concentration of Real Estate loans in Banking Financial institutions", which will manage the concentration of real estate loans according to the size of assets, the type of institutions and other factors. Real estate loan concentration management requires a transitional period of 2 or 4 years for business adjustment, and unimplemented institutions will be subject to additional capital requirements and other measures.

The introduction of the "system" aims at the long-term regulation and control of the real estate industry to resolve the continuation of systemic risks, that is, to avoid the banking industry's over-reliance on the real estate market and guard against the potential systemic risks caused by the excessive concentration of real estate loans by the financial system. improve the soundness of banking financial institutions.

In the short term, the main reasons for the limited impact on real estate companies are:

1. Over the past few years, bank regulation has become increasingly stringent, and exposure to real estate and home loans has remained stable.

2. Judging from the current data, with the exception of a few banks that have fully exceeded the standard, most banks have not reached the share limit (see chart below). As the data such as bank loan stock at the end of 2020 have not yet been released, if we only use the semi-annual report in 2020 to measure the proportion of bank real estate loans, it may underestimate the actual pressure to a certain extent, because real estate loans (including development loans and mortgage loans) of all types of banks are invested more quickly in the second half of 2020, so we think that the index ratio at the end of the year will be slightly higher than that in the middle of the year.

   Bank exposure to real estate loans and personal housing loans as of the first half of 2020

   

   Source: semi-annual report of listed banks, China International Capital Corporation Research Department, data as of the first half of 2020

3. The grace period given by the policy still has a long time to adjust.

4. Banks' further regulation of real estate company loans will help the real estate industry to further enhance industry concentration and curb the impulse of over-expansion of real estate companies.

Depth Analysis of Gao Teng International Research

• In 2020, TOP100 real estate enterprises achieved sales of 13.05 trillion yuan, an increase of 12.4% over the same period last year, which is higher than the expected annual growth of 5% in the case of the epidemic. Among them, in December 2020, the major housing enterprises continued to actively market and impact their annual results, with the monthly sales growth rate reaching 29.2%, the highest monthly sales growth rate of the year.Industry sales continued to increase steadily throughout the year.At the same time, recently, there has also been good regulation of real estate enterprises, such as the "double Ninth five-year Plan", the most eye-catching provision of the regulations on Urban Renewal of the Shenzhen Special Economic Zone, that is to say, after the signed area and the number of people have reached 95%, the remaining 5% can be levied to promote the process of urban renewal projects.

• After the introduction of the "three red lines", the refinancing of real estate companies is still smooth.With the exception of several online celebrity housing enterprises, all other housing companies that have issued bonds abroad have a cash-to-short-debt ratio of more than 1; thanks to the relatively good financing environment at the beginning of the year, as of November 2020, domestic real estate bond issuance was 50% higher than the same period last year.

• In the long run, population, savings and the process of urbanization all determine that it is difficult for real estate sales to replicate the "golden era" of the past decade or so.However, rigid demand and replacement will still support the purchase demand of most first-and second-tier cities.Real estate companies in the 11-50 first-and second-tier cities are expected to still record sales growth of 15-20%, slightly higher than the top 10 real estate companies'5-10% growth. And real estate developers rooted in first-and second-tier cities are better than other developers in terms of liquidity and financial data.

• The current low interest rate environment and demand for high-interest bonds will continue to support the performance of property bonds.Recent regulatory policies are also conducive to industry leaders, enhance the transparency of the industry, and consolidate the financial health of enterprises in the industry.

• With the differentiation of real estate companies, it will be further intensified.We still prefer companies with proper pace and methods of de-engineering and land acquisition, manageable liquidity pressure and relatively smooth financing channels.

Risk:

• In the general environment in which the central government insists on housing speculation, policy risk is still the biggest risk, no matter in the local policies such as price restrictions, purchase restrictions, loan restrictions, etc., to the central government to control the quota of lenders and borrowers, all pose a certain degree of pressure on real estate enterprises with tight liquidity and high leverage.

• Under the control of the debt issuance quota and the three red lines, housing enterprises will issue more table foreign debts, the structure of this kind of debt is diversified and the transparency of housing enterprises to this kind of information is low.Therefore, when choosing bonds, we should pay attention to the real estate enterprises that have a relatively clear and open debt structure on and off the balance sheet, rather than blindly following the whole industry.

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