Among investors’ concerns over the slowdown in China’s economic growth, contract sales of homes in the mainland over the past 12 months have continued to improve
Real estate developers released sales data for the whole of 2019 at the beginning of the month, and most of them exceeded sales targets
Among the basket of listed companies that Value Partners is concerned about, the contracted sales growth of the whole year last year was strong, with an average annual increase of about 20%. Investors’ doubts are just falling on whether last year’s bright performance of interior housing can continue?
For a long time, the short-to-medium-term policy framework established by the central government from top to bottom is a non-negligible indicator for the analysis of domestic housing stock debt assets. The policy party has a significant predictive role for the future development space of the industry.
Moderate short and medium-term control measures
This sector welcomed the good news of deregulation at the end of last year. The short-to-medium term control measures have been maintained moderately, and the authorities have also begun to study the removal of restrictions on settlement.
Since the fourth quarter of last year, the central government has adopted a slightly relaxed attitude towards the real estate market
Last month’s Central Political Bureau meeting did not mention the real estate industry, and the same month’s Central Economic Work Conference mentioned maintaining a tone of stability, emphasizing “stable land prices, stable housing prices, stable expectations, and maintaining a stable and healthy development of the real estate market.” In the coming year, the policy is also expected to be based on the principle of “urban policy”, and to make appropriate adjustments to individual cities to prevent downside risks and bring positive support to the market.
As for the loosening of the household registration system in some cities and the relaxation of housing purchase restrictions, it is expected to increase labor mobility and release some of the driving force for economic growth. Do not underestimate these changes that have changed the market structure and economic structure of China, because the labor population released by the free movement of domestic people will drive real estate sales in first-tier and second-tier cities.
We believe that strong structural demand and controlled supply will support the real estate market in first- and second-tier cities. In third- and fourth-tier cities, the property market will still be under pressure due to weak demand and high inventory effects.
Summarizing the above phenomena, the central government is still cautiously monitoring. On the premise that the overall property price is stable, it will actively review social and labor population reforms and encourage urban and rural population movements to make preparations to prevent speculation in real estate and create bubbles.
The onshore debt defaults that have surfaced in the past year or so have mostly occurred in companies with weak fundamentals or limited local government financing capacity, or bear the brunt of external uncertainties.
We believe that most of the real estate companies’ businesses are concentrated in the Mainland, and are less affected by the implementation and subsequent development of the China-US trade agreement and other external factors. At the same time, in July 2019, the NDRC issued a document restricting the overseas issuance of real estate companies’ bonds, which can only be used to replace mid- and long-term overseas debt due within one year. This move has limited the supply of high-yield US dollar bonds in domestic housing, brought scarcity value to this asset class, and formed positive support.