Source: CITIC Securities Research
Author: Chen Cong Zhang Quanguo Li Zongru
Original title: Real Estate｜The possible release path and impact of the “four restrictions”
The current growth of the real estate market is not as sustainable as in 2014, but the policy momentum is similar to that in the second half of 2014, the degree of adjustment of the competition pattern exceeds that of 2014, and the duration of opportunities in the land market may also exceed that of 2014.
CITIC Securities believes that there is ample room for city-specific policies on the real estate demand side. Relaxing restrictions on purchases, loans, prices, and sales may drive down the threshold for home purchases and the cost of home purchases.
This paper analyzes the possible release paths and impacts of the four restrictions in detail. CITIC Securities stated that it believes that the policy will help to improve the competitive environment of the development industry and improve the future profitability of enterprises, as well as to improve the penetration rate of channels and restart the chain of house exchange.
▍Demand-side policies face long-term limitations and short-term space.
We believe that there is limited room for long-end LPR to decline, as well as limited room for overall growth in real estate development investment. However, there is a lot of room for the reduction of mortgage loan interest rates, and there is also a lot of room for the relaxation of demand-side measures such as purchase restrictions, loan restrictions, sales restrictions, and price restrictions.
▍Because urban policy does not mean insufficient strength, it is expected that demand support policies will frequently occur.
The Politburo meeting of the Central Committee encouraged city-specific policies to support rigid and improved housing needs. We believe that a city-by-city approach (rather than a national one) has nothing to do with the strength of demand support. Not only do all regions have greater room for policy liberalization, but there are also more urgent needs to deal with issues such as delivery, land transfer, development and investment. In terms of experience in 2014, it generally takes 2-3 months for the first city to introduce easing policies and to follow up in a large number of cities.
▍The changes in the standards for recognizing houses and subscribing to loans will reduce the cost and threshold for purchasing houses.
The purchase restrictions are relaxed, taking into account support for the property market and other policy considerations. At present, many localities have adopted changes in the identification standards for the first home, and reduced local down payment and interest rate requirements, which constitutes the relaxation of loan restrictions. We believe that the adjustment of loan restrictions will effectively lower the threshold for residents to purchase houses and protect the demand for improvement. With the exception of a few third- and fourth-tier cities that directly release restrictions on purchases, most second-tier cities have adjusted their purchase-restricted areas, giving qualified talents or families with multiple children the qualifications to purchase houses, and families with existing houses for rent have more qualifications to purchase houses. Such practices have stimulated demand and achieved other policy goals.
▍The loosening of price caps will help restore the profitability of development enterprises, and the loosening of sales restrictions will promote the demand for house replacement in core cities.
Various localities have liberalized the price caps for new houses and the guide price for second-hand transfer to varying degrees, which is conducive to promoting the improvement of the profit margin of development enterprises in acquiring land in core cities, increasing the willingness of development enterprises to invest, and making development enterprises more focused on core cities. The adjustment of the transfer guide price and the loosening of sales restrictions to varying degrees may promote the restart of the house exchange chain. In addition, the narrowing of the first- and second-hand price gap will help to increase the channel penetration rate.
▍Risk factors:
The competitive landscape of the industry has changed dramatically, and some companies are at risk of shrinking their balance sheets. Some regional markets continue to face downside risks.
▍Investment advice:
We believe that the current growth of the real estate market is not as sustainable as in 2014, but the policy momentum is similar to that in the second half of 2014, the degree of adjustment of the competition pattern is greater than that of 2014, and the duration of opportunities in the land market may also exceed that of 2014. We recommend development companies with both credit and efficiency, including Poly Development, Vanke A/Vanke Enterprise, Gemdale Group, China Merchants Shekou, Greentown China, Huafa, Longfor Group, China Resources Land, Binjiang Group and Midea Real Estate. We are also optimistic about Shell, a real estate service platform with core competitiveness that has clearly benefited from the gradual liberalization of the four restrictions.
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