On October 17th at 10 a.m., the State Council Information Office will hold a press conference introduced by the Minister of Housing and Urban-Rural Development, Ni Hong, along with the heads of the Ministry of Finance, Ministry of Natural Resources, People's Bank of China, and the State Financial Regulatory Administration, to discuss the promotion of stable and healthy development in the real estate market.
Since September 24th, the industry has seen a continuous stream of supportive policies. On September 24th, the Governor of the People's Bank of China, Pan Gongsheng, announced a reduction in the interest rates of existing mortgages, guiding commercial banks to lower the interest rates of existing mortgages to a level close to that of newly issued mortgages. The minimum down payment ratio for the first and second homes was unified, with the national minimum down payment ratio for second-home loans being reduced from 25% to 15%.
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The People's Bank of China and the State Financial Regulatory Administration issued a notice on extending the duration of some real estate financial policies. On September 26th, the Political Bureau of the CPC Central Committee held a meeting, proposing to promote the real estate market to stop falling and stabilize, strictly control the increase in commercial housing construction, optimize the existing stock, and improve quality. From September 29th to September 30th, Beijing, Shanghai, Guangzhou, and Shenzhen successively optimized their home purchase policies. Guangzhou clearly canceled all purchase restrictions for resident families in the city, which will officially come into effect from September 30, 2024; Beijing, Shanghai, and Shenzhen have relaxed the social security payment period for non-registered homebuyers to varying degrees and adjusted the minimum down payment ratio, among other things. With multiple departments announcing the systematic implementation of a package of incremental policies to promote the real estate market to stop falling and stabilize, we believe that the sector's fundamentals have already reached the bottom. With the continuous care of policies, the sector's valuation is expected to be repaired. It is recommended to pay attention to the investment opportunities in the Real Estate ETF (515060) and its linked funds (008088/008089).
1. The real estate market has over-adjusted, and policies are expected to drive the emergence of an inflection point
Considering the comprehensive replacement demand and the continuation of the urbanization process, the annual central sales bottom range of the real estate market may have been seen. As of August 2024, the national commercial housing sales area has decreased by 18.0% year-on-year, and the sales amount has decreased by 23.6% year-on-year, with the decline slightly narrowing compared to the first seven months; the monthly value of commercial housing sales area has been decreasing for 35 consecutive months, far exceeding the duration of the last larger downcycle (from February 2014 to March 2015).
Assuming that the annual decline in commercial housing sales area in 2024 is within the range of 10%-20%, it can be calculated that the total commercial housing sales area for the year 2024 will be around 900 million square meters, lower than the central demand for new housing in the real estate market in the next 5-10 years. This indicates that the current real estate market may have over-adjusted.
With the further recovery of the macroeconomy and the continuous increase in policy support, the real estate market is expected to gradually move out of the adjustment range. The current effective demand is expected to improve year-on-year, and the inflection point of the real estate market is expected.
2. National Day market sales data has shown an upturn
During the National Day period, sales data in cities of all levels showed a significant improvement, and the sales volume under policy stimulation is expected to continue. Affected by policy stimulation and the low base of the National Day period, last week (10.7-10.13) saw a significant increase in commercial housing sales volume. The transaction area of commercial housing in 30 large and medium-sized cities increased by 139.15% month-on-month and decreased by 12.02% year-on-year, with the decline significantly narrowing; the transaction area in cities of all levels increased significantly, with first-tier, second-tier, and third-tier cities increasing by 153.63%, 83.62%, and 266.97% month-on-month, respectively.
Land transaction area has increased across the board: As of last Sunday, the transaction area of land in 100 large and medium-sized cities was 16.06 million square meters, increasing by 135.16% week-on-week, with the transaction area of land in first-tier, second-tier, and third-tier cities all increasing, with week-on-week increases of 1266.03%, 77.89%, and 160.25%, respectively. The overall transaction land premium rate has risen: As of last Sunday, the transaction land premium rate in 100 large and medium-sized cities was about 3.52%, up 2.59 percentage points from the previous week. Among them, first-tier cities decreased by 12.38 percentage points, second-tier cities increased by 0.60 percentage points, and third-tier cities increased by 5.00 percentage points.3. Historical Comparison: The Current Round of Stimulus is Expected to Reach an Inflection Point Level
In comparison with historical data, the current policy intensity is no less than that of previous inflection points in the real estate market. After the May 17th meeting, real estate policies have been frequently introduced: ① The central bank launched a 300 billion yuan re-lending support for the purchase of affordable housing; ② The lower limit for mortgage interest rates has been completely abolished; ③ Commercial banks are guided to reduce the interest rates on existing mortgages, with an expected average decrease of 50 basis points; ④ Guangzhou has fully relaxed purchase restrictions, and other first-tier cities have optimized their purchase restriction policies to varying degrees; ⑤ In addition, encouraging home purchase policies continue to be introduced, along with consecutive interest rate cuts and reserve requirement ratio reductions, both the speed and intensity of real estate policy advancement have exceeded expectations.
From the experience of the real estate market's stabilization in 2014-2015, stopping the decline and stabilizing urgently requires fiscal strength to be exerted, and more fiscal policies are worth looking forward to. Recently, the Ministry of Finance meeting has clearly indicated that the direction of fiscal efforts will focus on the purchase of land and the recycling of idle land. The adjustment of land quantity and price is sufficient, and the real estate market has the foundation to stop the decline and stabilize.
In terms of new housing sales, it has broken through the medium and long-term central axis: The estimated total sales area of commercial housing for the whole year of 2024 is 950 million square meters, nearly halved from the peak in 2021, and the sales have broken through the medium and long-term central axis (1.1 billion square meters); In terms of total housing demand, the sales area of second-hand housing has nearly doubled, and the total demand is stable: The estimated sales area of second-hand residential housing in 2024 will reach 780 million square meters (yoy+10%, doubled from 2022), and the total housing transactions (new + second-hand) in the past three years have been relatively stable; In terms of housing prices, the rental yield is gradually converging with the risk-free yield, and the adjustment of housing prices is sufficient: In the first half of 2024, the rental yield of key 50 cities has reached 2.03%, almost equal to the yield of 10-year government bonds (2.19%), and housing prices have gradually returned to a reasonable valuation.
The sales volume of China's real estate market has broken through the reasonable central axis, and prices have returned to a reasonable valuation. At the same time, policies have begun to exert strength, and the stabilization of the real estate market's volume and price has the foundation.
4. Further Policy Stimulation to Repair Sector Valuation
The press conference on October 17th includes the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, and the State Financial Regulatory Administration. It is expected that policy reinforcement support will be provided from aspects such as purchase restrictions and sales restrictions in the real estate industry itself, land auction policies, fiscal policy support for land reclamation, and financial resource support for white-listed real estate companies.
At present, the sector's P/B valuation has been below the 10% percentile in the past decade. After three years of adjustment, the sector has fallen significantly, and the current sector configuration value is prominent. It is expected to shift from policy stimulation to an improvement in sales data, ultimately leading to a significant reversal of the sector's difficulties. It is recommended to pay attention to the investment opportunities of the Real Estate ETF Huaxia (515060) and its linked funds (008088/008089).
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