After "one city, one policy", the influence of local governments on the property market has increased, but the big logic of "staying and not speculating" has not changed, and only the demand of a few cities can support the rise in housing prices.
Caijing reporter Wang Bo Intern Qin Xinyu Hvenmark Editor
At the end of the year and the beginning of the year, the central government’s wide currency and local loose purchase restrictions have taken a two-pronged approach, so that developers who have been suppressed for a year have seen the hope of bottoming out. "Of course, the biggest concern is where is the next deregulated city?" A number of regional real estate executives told Caijing (blog, Weibo) reporter frankly.
At the end of 2018, Shandong Heze first issued a signal of loosening the regulation of the property market and canceled the restriction on the sale of new residential houses. Subsequently, many cities relaxed their purchase restrictions, and Guangzhou (real estate), Zhuhai (real estate), Hangzhou (real estate), Qingdao (real estate) high-tech zone and other places used supplementary social security, talent introduction, settlement and other means to regulate the market. The general direction was to stimulate purchasing power and improve the efficiency of buying houses and transferring ownership.
The local government has quietly relaxed the regulation of the property market, but there are traces to follow. On December 19, 2018, the Central Economic Work Conference put forward the general direction of strengthening the main responsibility of the city government and improving the housing market system and housing security system under the background of not speculating in housing. Among them, the policy of the city is to decentralize the power to the local government.
With the loosening of local property market regulation, the financial system continued to release water. At the beginning of 2019, official website, the central bank, announced that it would reduce the RRR by 1 percentage point and release 800 billion yuan of long-term funds. In 2018, the central bank has visited targeted cuts to required reserve ratios four times, releasing about 3.5 trillion yuan of base money. Zhang Ming, chief economist of Ping An Securities, predicted that monetary policy relaxation will continue in 2019, and the central bank should have four RRR cuts.
The last large-scale money release was ten years ago. In November 2008, in order to resist the international financial crisis and stabilize economic growth, the government launched a "4 trillion" investment plan. After that, China real estate experienced two rounds of skyrocketing, and the average house price in first-tier cities rose by 6 -8 times.
After the wide currency, the wide credit followed. According to data from Rong 360, in December 2018, the average interest rate of the first home loan in China was 5.68%, down 0.03 percentage points from the previous month, which was the first time that the first average interest rate in China fell in 23 months.
Under the multiple benefits, the market is hotly discussing whether the turning point of the property market is approaching. On December 24th, 2018, Wang Menghui, Minister of Housing and Urban-Rural Development, said that the goal of 2019 will be to stabilize land prices, house prices and expectations. But what about the word "stable"? Opinions vary from party to party.
Wide currency developers have limited benefits.
Since 2018, the central bank has lowered the RRR five times, and the general tone of macro-control with wide currency and wide credit has eased the financing difficulties of good developers.
In November 2018, the financing amount of housing enterprises exceeded 100 billion, and in December it reached 160 billion. In the first ten days of January 2019, the financing amount was as high as 70 billion. Financing housing enterprises include R&F, Longguang, Sunac, Midea Real Estate, etc. Among them, Sunac and Longguang, which have higher financing costs, account for about 6%, while others are between 45%. This set of data is much lower than the financing cost of housing enterprises in the previous two years. In 2017, the average domestic financing cost of housing enterprises was about 8%-9%.
In 2018, targeted cuts to required reserve ratios, the central bank, brought 3.5 trillion yuan to banks and increased the liquidity of the whole society. Concerns also follow: whether a large amount of hot money will flow to real estate, leading developers to continue to buy land with high leverage, thus speculating on land prices and housing prices.
Zhang Ming believes that the five RRR cuts have brought some changes to the financing environment of developers, but at present, small and medium-sized developers are not in the bank’s field of vision, and many banks still only lend to the top 20 housing enterprises in the country. The central bank’s recent four RRR cuts are all targeted. It is hoped that banks will lend money to small and medium-sized enterprises, private enterprises and innovative enterprises to support debt-to-equity swaps and manufacturing industries, rather than flowing to real estate.
However, before that, there did appear the situation of "left-handed" and "yin-yang contract". After the SMEs borrowed from the bank, they lent the money to the developers, and the SMEs became a channel for real estate developers to raise funds. Xiang Songzuo, former chief economist of Agricultural Bank of China, told Caijing that according to the requirements of the central bank, commercial banks have clear provisions on the use of loans for small and micro enterprises. The central bank has also brought the support effect of commercial banks on small and medium-sized enterprises into the macro-prudential assessment (MPA) system. "Of course, there will be regulatory loopholes in the operation process, but it will not form a universal phenomenon."
Dong Ximiao, deputy dean of Chongyang Financial Research Institute of Renmin University of China, believes that the 4 trillion package plan in 2008 was directly invested by the main government, many of which were in the field of infrastructure, and more funds directly or indirectly flowed into real estate.
In this round of monetary policy adjustment, the central bank’s goal is to inject liquidity into key areas and weak links more efficiently, rather than the real estate market.
At the end of July, 2018, the meeting held in the Political Bureau of the Communist Party of China (CPC) Central Committee also set the tone for macro adjustment, and put forward six stabilities (stable employment, stable finance, stable foreign trade, stable foreign investment and stable expectations), among which stable employment ranked first, and only small and medium-sized enterprises and private enterprises can bring stable employment.
Since the beginning of 2019, UBS Securities has conducted research on dozens of head real estate companies, financial institutions and industry experts, and believes that the central government has not yet released large-scale water to real estate at the credit level. "In 2019, investors generally expect the GDP growth rate to be in the range of 66.5%. If the downside risk of the economy is too large, such as less than 6, then there will be more macro-stimulus measures." Ge Ge, a real estate analyst at UBS Securities, told Caijing reporter.
One city, one policy, the property market opens precise regulation.
At the Central Economic Work Conference held on December 19, 2018, in addition to insisting on housing and not speculating, the central government also put forward requirements such as city policy, classified guidance and consolidating the main responsibility of the city government. At the recent local two conferences held in various places, "one city, one policy" has become a hot word.
In the past two months, the regulation of the property market in some areas has been loosened, which is also a test of one city and one policy. For example, Heze cancels the restrictions on the transfer of new houses and reduces the supervision of funds for pre-sale buildings in urban areas; Guangzhou’s commercial housing can be sold to individuals, and the purchase of the first suite in neighboring cities can apply for provident fund withdrawal; Hangzhou allows social security to be paid three times; Hengyang (real estate) has cancelled the price limit.
Zhang Dawei, chief analyst of Zhongyuan Real Estate, believes that the expectation of the property market has changed, the most stringent period of real estate regulation and control policies has passed, and fine-tuning will be inevitable. In 2019, the property market policies of more than 30 cities will be fine-tuned. As long as the housing prices do not rise, the real estate policies are likely to be loose.
Whether house prices will rise sharply in 2019, the regulation of local governments is an uncertain factor.
In 2018, the national sales of commercial housing was nearly 15 trillion. Usually, developers will take 50% to 60% of their income to acquire land, which is equivalent to about 8 trillion yuan flowing to local governments every year. Only when house prices rise can land be sold, and local governments are of course happy to see house prices rise.
In 2018, the national land purchase volume and price both fell. For the regulation of the property market, local governments and the central government have been in a game, but one city and one policy does not mean that local governments can let go of their hands and feet to develop land finance. Take the cities that have been deregulated in the past two months as an example, they are all fine-tuning based on destocking, partial release of just-needed, and improving the efficiency of housing transactions.
Yang Xianling, president of RealData, believes that "one city, one policy" gives local governments the flexibility to regulate the property market, but it cannot be divorced from the central logic of "housing and not speculating", and at the same time, local governments will also bear the responsibility of responding.
Many people pay attention to the policy of the city, but ignore the following sentence: "Consolidate the main responsibility of the city government". Zhang Ming believes that this sentence means that if the house price rises too high or too fast, it will directly affect the promotion of relevant officials.
Many economists predicted to Caijing that in 2019, the RRR cut is still expected, but it is unlikely that the property market will skyrocket and plummet. The tone of the real estate market in 2019 is obvious-a stable and long-term mechanism.
Zhang Ming’s team once estimated that about half of the total loans of China Bank (601988) were related to house prices and land prices. According to a report issued by Guangfa Bank and Southwest University of Finance and Economics, 80% of China households’ assets are houses. If the property market plummets and the downward pressure on the economy increases, it will lead to systemic financial risks and social risks. At the same time, due to the limited overseas investment, the property market is still the most important target in the allocation of household assets in China. If the property market soars, the leverage ratio of residents and housing enterprises will increase, which will make the previous deleveraging achievements fall short.
At the Winter Davos Forum on January 24th, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said that the leverage ratio of China’s household sector has exceeded 110%, which is higher than that of the United States. This is a terrible figure, and if it is not controlled, the debt problem may break out. He believes that now that the economy is stimulated, the leverage of enterprises can no longer be increased, and the leverage of residents can no longer rise. The only thing that can be improved is government debt, so we have seen that local debt is gradually loosening.
Which cities have room for rising house prices?
In cities that are deregulated, there is actually no obvious fluctuation in house prices. In the data published on the website of China Real Estate Association, Caijing reporter found that the house price in Heze rose in December when the news was announced, and fell again in January. The house prices in Hangzhou and Hengyang remained unchanged, while the house price in Guangzhou rose slightly.
Wen Bin, chief researcher of Minsheng Bank (600016), believes that the supply and demand of the real estate market are generally balanced from the national perspective, but different cities have different structural characteristics due to factors such as industry, population and land. At present, housing prices in first-tier and some second-tier cities still have upward momentum due to the suppression of demand in the early stage, and housing prices in third-and fourth-tier cities are facing downward pressure.
"Buying a house now is a high-level takeover, and it is impossible to make money. The local government thinks that after the price limit and purchase restriction are liberalized, investors will come to speculate. In fact, it is probably wishful thinking. Even if all the real estate control policies are liberalized, where will the demand come from for most third-and fourth-tier cities? " Say to Matsuzaka.
He believes that the net inflow and outflow of population will be the main indicators to judge the next round of housing price fluctuations.
At the end of 2018, the Report on the Development of Floating Population in China (2018) released by National Health Commission showed that the number of floating population in China declined for three consecutive years. Judging from the development trend of floating population in urban agglomerations, the long-term resident floating population is on the rise, and the five major urban agglomerations represented by the Pearl River Delta, the Yangtze River Delta, Beijing-Tianjin-Hebei, the middle reaches of the Yangtze River and Chengdu-Chongqing urban agglomerations will remain the main gathering places of floating population in the future.
According to a set of data released by China Index Academy, in 2018, housing enterprises focused on the Yangtze River Delta and the central and western regions. Vanke and Country Garden, the top two land buyers, have heavy positions in these two areas, accounting for 19.86 million square meters and 37.66 million square meters respectively. According to the statistics of Caijing reporters, among the second-tier cities in the Yangtze River Delta and the central and western regions since 2017, the cities with a net population inflow of more than one million are Ningbo (real estate), Jiaxing (real estate), Hangzhou, Wuhan (real estate) and Zhengzhou (real estate).
In 2018, housing prices in third-and fourth-tier cities experienced an irrational rise due to the monetization policy of shed reform, while first-and second-tier cities such as Chengdu, Xiamen (real estate), Shanghai (real estate), Hangzhou and Beijing (real estate) rose too fast in 2017, and all of them were adjusted back in 2018.
The Joint Laboratory of Housing Big Data released a report after investigating 142 sample cities. In 2018, the top five cities with rising house prices were Xianyang (real estate), Haikou, Nanyang (real estate), Xi ‘an (real estate) and Guiyang, all of which were third-and fourth-tier cities, with increases of 36.94%, 35.43%, 31.62% and 29.01 respectively. The top five cities with falling house prices in 2018 are Chengdu, Xiamen, Langfang, Shanghai and Zhangjiakou (real estate). Among them, Zhangjiakou is irrational because of the concept of speculation in the Winter Olympics, while the other four cities are either first-tier or second-tier cities around the first line.
Zhang Ming believes that quasi-first-tier cities around first-tier cities, or cities in second-tier cities where house prices have risen relatively slowly in the past few years, may have rising potential in the future. For example, the housing prices in Guangdong-Hong Kong-Macao Greater Bay Area and Shenzhen are already very expensive, while those in Guangzhou are cheaper than those in Shenzhen, while those in Foshan and Dongguan are cheaper than those in Guangzhou. In the Yangtze River Delta, the housing prices in Shanghai and Hangzhou are very expensive, but the housing prices in Nanjing are OK. Beijing’s purchase restriction is very strict, but its surrounding cities such as Tianjin (real estate) still have room for growth.
According to the Monitoring Report of China Real Estate Enterprises in 2018 by China Index Academy, the top ten real estate enterprises will all take land in second-tier cities in 2018. Take Vanke as an example, its land acquisition area in second-tier cities accounts for 63.9% of the annual land acquisition area, and the land acquisition amount also accounts for 60.9% of its total amount. (The top ten real estate enterprises are Vanke, Longhu, Poly, China Shipping, Country Garden, Evergrande, Jindi, Shimao, Greentown and R&F)
Head developers have strong financial strength, and they are quick to harvest the first and second lines, and small and medium-sized developers settle for second best. In recent contacts with developers, Mr. Ge of UBS Securities found that many small and medium-sized developers no longer mention the third and fourth lines. The boat is easy to turn around, and they have also targeted the second-tier cities.
The new round of property market regulation began in the fourth quarter of 2016, when the first-tier cities began the purchase restriction policy. In the second and third quarters of 2017, the purchase restriction spread to second-tier cities, and the purchase restriction in many second-tier cities changed from three years to five years. However, after two years of regulation, the buyers who had just needed social security for three years already had the qualification to buy a house.
On March 17, 2017, Guangzhou released the latest purchase restriction policy, and the qualification for foreign buyers to purchase houses changed from three years to five years; In the same month, Hangzhou also implemented a purchase restriction, requiring foreign buyers to pay social security for two consecutive years. In 2019, the just-needed purchasing power restricted by social security in these two cities will be released.
Just-needed and improved demand is still the focus of bank mortgage support. Zhang Ming believes that with the market liquidity brought about by the RRR cut and the decline of bank capital cost, the interest rate of the first home loan will fall. However, the central government’s determination to curb speculative real estate speculation has not been relaxed. In addition to the purchase restriction, the loan restriction is also more severe. Zhang Ming revealed that the mortgage loans of many commercial banks have not exceeded 1 million yuan recently.
This article was first published on WeChat WeChat official account: Caijing Magazine. The content of the article belongs to the author’s personal opinion and does not represent Hexun.com’s position. Investors should operate accordingly, at their own risk.
(Editor: Cui Chen HX015)
