Monthly report of the real estate industry: the growth rate of investment in a single month turns negative and the expected policy margin improves.

According to the national real estate development industry statistics released by the National Bureau of Statistics in January September 2021, investment in real estate development increased by 8.8% compared with the same period last year; the sales area and sales of commercial housing increased by 11.3% and 16.6% respectively, and funds in place increased by 11.1% over the same period last year.

Real estate fundamentals continued to weaken in September, the growth rate of investment turned negative for the first time in a single month, and the decline in monthly sales prices reflected a bilateral weakness in supply and demand, with negative growth in new construction, a slowdown in construction growth, and a sharp weakening in completion, with funds in place to maintain negative growth.

The cumulative investment growth rate continued to decline, and the monthly growth rate turned negative for the first time: from January to September, the total investment in real estate development nationwide was 11.2568 trillion yuan, an increase of 8.8 percent over the same period last year, and the growth rate was 2.1 percentage points lower than that in January-July. The monthly investment in September was 1.4508 trillion yuan, down 3.5% from the same period last year, and the growth rate was 3.8% lower than the previous month.

We believe that the growth rate of investment in real estate development has declined for seven months in a row, and the monthly investment has changed from positive to negative mainly because: (1) under policy supervision, real estate enterprises are pessimistic about future sales and payback expectations; (2) in order to meet the requirements of the three red lines, developers’ demand for sales scale growth has weakened; (3) the tightened pre-collection regulatory policy has worsened real estate enterprises’ expectations of their own liquidity.

Monthly sales continued to fall in both volume and price: since July, the sales area and sales of single-month commercial housing have declined for three months in a row. From January to September, the sales area of newly built commercial housing nationwide was 1.303 billion m2, with sales of 13.48 trillion yuan, an increase of 11.3% and 16.6% respectively over the same period last year, which was 4.6 and 6.2 percentage points lower than the cumulative year-on-year growth rate in January-August. The average sales price was 10342 yuan / m2, an increase of 4.7% over the same period last year. In September, the sales area and sales of commercial housing fell 13.2% and 15.8% respectively from the same period last year; the average sales price was 9758 yuan / m2, down 3.0% from the same period last year.

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On the one hand, the continued decline in sales is due to a lack of supply, on the other hand, it also reflects the rapid decline in demand. With the current supply shortage, upward pressure on prices will increase if demand is stable, but average sales prices fell for two consecutive months in August and September, indicating that the edge of market demand is also weakening. Under the current downward environment of residents’ home purchase expectations, it is expected that the property market, especially in third-and fourth-tier cities, will continue to be under pressure in the fourth quarter.

The negative growth in new construction, the slowdown in construction growth, and the sharp weakening in completion: from January to September, the cumulative housing construction area was 9.281 billion m2, an increase of 7.9% over the same period last year, and the growth rate was 0.5 percentage points lower than that of January-August. The cumulative area of new housing starts was 1.529 billion square meters, down 4.5 percent from the same period last year, with a decrease of 1.3 percentage points from the previous month; and the new construction area in September was 174 million square meters, down 13.5 percent from the same period last year, or 3.3 percentage points lower than the previous month. From January to September, the total area of housing completed was 510 million square meters, an increase of 23.4 percent over the same period last year, and the growth rate was 2.6 percentage points lower than that of January-August. In September, the area of houses completed in a single month was 4274 million square meters, an increase of 1.0 percent over the same period last year, or 27.4 percent lower than the previous month. The second batch of centralized land supply is not as expected, enterprises are not willing to take the land to start work, and it is expected that new construction and construction data will be further under pressure in the future.

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The decline in domestic loans dragged down the growth of funds: from January to September, the total amount of real estate funds in place totaled 15.15 trillion yuan, up 11.1% from the same period last year, and the growth rate was 3.7% lower than that in January-August. In September, real estate development funds reached 1.71 trillion yuan, continued negative growth, down 11.2% from the same period last year. Among other funds, deposits and advance payments and personal mortgage loans fell 5.7% and 2.7% respectively from the same period last year, narrowing by 1.3 and 0.9 percentage points month-on-month. Since August, sales have been negative for one month in a row, and if real estate sales weaken further, the deposit and pre-sale rebate in the fourth quarter will be further worsened. At present, the attitude of development loan and mortgage policy is marginal loose, there is marginal room for improvement in domestic loans and mortgage repayment, and the liquidity pressure of the industry as a whole is expected to be alleviated to a certain extent.

Investment advice: we believe that the current real estate industry environment is experiencing a healthy competitive process of distinguishing fake things and retaining the real things. Although the industry faces the downward pressure of growth rate in the process of weakening both supply and demand, and the fierce competition under the centralized land supply system has declined significantly, the leading housing enterprises with sound operation have obtained the window period of high-quality supplementary land resources. It is suggested that we should pay attention to the investment opportunities of improving the policy expectation of the real estate sector and optimizing the competition pattern of the superimposed land market in the fourth quarter, and recommend the investment opportunities of Poly Development, Vanke A, Metro Holdings, and H-share growth real estate enterprises Greentown China and Xuhui Holdings Group.

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