Sheng Songcheng: Impact of New Crown Epidemic on Real Estate Market and Countermeasures

Sheng Songcheng: Impact of New Crown Epidemic on Real Estate Market and Countermeasures
For stocks, please read Jin Qilin analyst research report, authoritative, professional, timely, and comprehensive, to help you tap potential potential opportunities!  Sheng Songcheng: The impact of the New Crown epidemic on the real estate market and countermeasures Suggested sources: Surging news Since late January 2020, the New Crown pneumonia 天津夜网 epidemic has swept across the country, causing a huge impact on the current economy, and the real estate industry naturally cannot stay out of the business.What is the impact of the outbreak on the real estate market?How can the real estate industry actively respond to the epidemic to play a role in promoting employment, protecting people’s livelihood, and stabilizing economic development based on the stable development of the industry?  First, the status quo of the real estate industry is different from the SARS period in five aspects. Although the epidemic is similar to that in 2003 and provides us with experience of investable capital, history may not simply repeat itself.The current economic environment of the real estate industry has played a very different role in the economic development of developing countries than in 2003. There have also been many changes in the characteristics and development trends of the real estate industry. Historical experience must be treated with caution.It is impossible to simply use the situation in 2003 to analyze the current problems, otherwise it is likely to cause wrong predictions.The situation of the real estate industry in 2003 is different from at least the following five aspects: First, the development stage of the real estate industry is different.In 2003, the real estate market was still in the initial stage of development.The previously suppressed demand due to the housing distribution system has been released with great potential.At that time, the urban living environment was far worse than it is now, and the per capita residential building area in cities and towns was only 23.7 square meters, and at present, the average residential housing of the country has exceeded 1.One set. In 2018, the per capita residential building area in cities and towns reached 39 square meters, which was 1 in 2003.65 times.  Second, different stages of economic development have achieved different positioning of the real estate industry.On August 12, 2003, shortly after the end of the SARS epidemic, the “State Council’s Notice on Promoting the Sustainable and Healthy Development of the Real Estate Market” (Circular 18) positioned the real estate industry as a “pillar industry” for economic development.Welcoming the first rapid development after the housing reform.Now, after undergoing rapid development from 2014 to 2016, the 2016 Central Economic Work Conference formally proposed that “houses are used for living, not for speculation”; it was first proposed at the Political Bureau meeting on July 30, 2019.Do not use real estate as a short-term means of stimulating the economy. “This policy guidance of the real estate industry determines that the current industry development orientation is different from 2003.China’s real estate industry has entered a new stage of development.  Third, the development trend of the real estate market is different.No matter in 2002 before the SARS outbreak or the year when the SARS epidemic occurred, the real estate development investment and the average sales value showed a rapid growth trend. The growth rate of real estate development investment was 21.9% and 29.7%, the relative growth rate of real estate growth was 23.7% and 34.1%, the ten-year growth rate of sales area was 20.2% and 29.1%.In recent years, the real estate development investment and sales have exceeded their growth rate and have turned around, basically showing an “inverted U-shape” trend.The investment in real estate development in the first half of 2019 will increase by 9%.9%, and these and sales area increased by 6 respectively.5% and -0.1%, are relatively low for more than ten years.  Fourth, the level and leverage of housing enterprises are different.The total debt scale of real estate companies was 30,698 in 2003.5.6 billion rose to 674333 in 2018.US $ 3.6 billion, the ratio of the overall budget of real estate companies to the value added of the industry is 4.99 times rose to 10.43 times.The overall interest rate of the real estate industry was 58 in 2003.04% rose to 80 in the first three quarters of 2019.26% (according to Shenwan’s first-level industry classification standard), a significant increase of 38.28%.In general, the debt burden of real estate companies has increased significantly compared to before, and their dependence on financing is also higher than before.  Fifth, residents have different purchasing power for houses.The huge debt burden has severely reduced residents’ purchasing power for houses.2003 Annual Residents’ Leverage Intervention16.2%, compared to 53 in 2018.2%, and it is still on the rise.The overall leverage of the Chinese economy is also relatively high, and risk leverage continues to increase.In addition, income growth is expected to drive the trend of home sales growth is also unprecedented.The year 2003 is normally in the period of trade blowout immediately after joining the WTO, and at the same time, it has ushered in a demographic dividend window.From 2000 to 2005, the compound growth rate of temporary disposable income of urban residents was 10.81%, compared to 7 in 2014-2019.99%.  Second, the impact of the epidemic on the real estate market From the perspective of real estate development, in the worst case, the epidemic may lead to a decline in real estate development investment.53%.This is because, affected by the epidemic, land transactions in most of the remaining areas have been temporarily suspended. At the same time, holiday extension and epidemic prevention measures will affect real estate development.Although projects that have started before 2020 will be resumed one after another, the projects that were originally scheduled to start this year may be affected by interference.In the first quarter of 2019, the proportion of land purchase expenses in real estate development funds in developing countries was 29.12%, and 65% were Jian’an engineering and equipment and appliances purchase.71% (of which, the area of newly started construction accounts for about 5.54%).As a result, real estate development investment due to the suspension of land transactions in the first quarter of this year may decline29.12%, real estate development investment due to suspension of new construction may drop 3.64% (65.71% * 5.54%), and the prolongation of holidays may lead to a decline in investment in projects under construction4.77%, a total decrease of 37.53%.  Real estate sales indicators are also grim.Affected by the epidemic, many cities across the country issued “suspended operations” notices for the real estate market, prohibiting sales offices, and intermediary stores continue to operate.The China Real Estate Industry Association also issued a call for the nation’s real estate to temporarily suspend sales activities at the sales office and wait for the epidemic to recover itself.According to statistics from the Central Plains Real Estate Research Center, since late January, the transaction volume of most developers has plummeted by 95% compared to the previous Spring Festival.By region, as of 24:00 on February 4, 2020, the sales area and sales of commercial housing in the 10 provinces (Hubei, Zhejiang, Guangdong, Henan, Hunan, Jiangxi, Anhui, Chongqing, Jiangsu and Sichuan) with the largest number of new pneumonia diagnosed.Amounts accounted for 60 of the country.31% and 61.78%.  It is difficult to sell homes online.Because the value of the house is high and it has a long-term impact on people’s lives, it is difficult to trade directly without on-site inspection like ordinary consumer goods.Moreover, most consumers and manufacturers are not very familiar with the online sales model of real estate.In addition, the purchase of a house also involves loans, transfers and other formalities that must be performed by the purchaser in person.  Even if demand for homes delayed due to the epidemic is expected to rebound after the epidemic, the short-term impact of the epidemic on real estate sales is huge.In the first quarter of 2019, the number of Chinese real estate companies was 27038.7.7 billion yuan.If the average for 2019 is 6.The highest growth rate of 5% is estimated that in the first quarter of 2020, housing companies will reach 28,796 this time.2.9 billion yuan.If calculated based on a 50% loss budget, the loss in the first quarter would be as high as 14,398.1.4 billion.  The capital chain of real estate companies will be severely impacted.Sales receipts (including personal mortgage loans and deposits and advance receipts) have become the main source of funds for real estate companies.In 2019, the proportion of sales receipts in the actual funds of real estate development enterprises reached 49.A historical high of 62%, totaling 886.4 billion yuan.In fact, due to severe financing restrictions, domestic loans accounted for only 14.13%, the lowest point in history.  Due to the high resistance level of some housing enterprises, the overall debt ratio in the first three quarters of 2019 has reached 80.26%, if the funds cannot be withdrawn quickly, it may lead to a break in the capital chain.Real estate industry mergers and acquisitions have a contradictory relationship with the capital chain risks of real estate companies.The data shows that in 2002, there were only 27 M & A cases in the real estate industry, and the scale of M & A was 18.9.5 billion.In 2003, the number of M & A cases was 36, and the scale of M & A reached 39.9 billion yuan, an increase of 110.55%.In 2004, the scale of mergers and acquisitions further increased to 49.5.8 billion US dollars, only gradually reduced after 2005.In 2019, there were 221 real estate mergers and acquisitions with a scale of 1840.6.4 billion.If the epidemic situation causes the risk of real estate companies’ capital chain to explode, a large number of small and medium-sized real estate companies will be closed for this reason, and this process may continue for 2 years or even longer.In the long run, this will further increase the concentration of real estate markets in developing countries and may increase the difficulty of real estate transformation.  The real estate market with potential net worth exceeding the region will face higher risks due to the outbreak.The problem of excessive housing supply in some of the previous third- and fourth-tier cities originally put the real estate market at risk, and the gradual withdrawal of the shed reform policy will further increase the risks in these cities.With the development of the epidemic, it is also difficult to realize the return of home purchases during the Spring Festival.In addition, the outbreak also reflects the disadvantages of third- and fourth-tier cities in logistics, living environment and emergency management. With the current opening and settlement of large and medium-sized cities, the future migration of third- and fourth-tier cities may be more serious.Real estate risks in third- and fourth-tier cities are on the rise.  Third, the impact 武汉夜生活网 of the epidemic on the real estate market will drag down the overall economic growth and employment levels. The downward pressure on the economy brought by the decline in real estate investment is quite obvious.Real estate investment accounts for about 20% of fixed asset investment.The formation of capital from 2017 to 2019 will drive national economic growth2.3, 2.2 and 1.Nine averages, mean 2.13%.From 2017 to 2019, the proportion of real estate investment in fixed assets investment was 17 respectively.38%, 18.92% and 23.97%, mean 20.09%.According to preliminary calculations, the average real estate investment in the past three years has driven the country’s economic growth by about 0 every year.43 averages (20.09% * 2.13%).If real estate investment growth in the first quarter of 2020 falls 37.53% (based on previous calculations), the drop in GDP growth caused by real estate investment has reached zero.16 digits (0.43 * 37.53%).Due to the current GDP growth rate of about 6%, it is difficult to ignore the downward pressure on the economy brought by the decline in real estate investment.  The decline in real estate investment may also directly or indirectly affect employment.In 2018, there were 4.66 million real-estate urban employment.Based on this estimate, the epidemic will affect urban employment in the real estate industry174.90,000 people (466.01 * 37.53%).There are many related industries in the real estate industry. From the perspective of the industrial correlation coefficient, the real estate industry and the 42 industries classified by the National Bureau of Statistics are completely related to different degrees. Therefore, the impact of the epidemic on the real estate industry will follow these industries.Taking the construction industry as an example, according to the real estate industry’s degradation of the complete consumption coefficient of the construction industry, it will indirectly lead to the construction industry73.Employment of 40,000 people was affected.Considering the impact of the construction industry itself on the epidemic, the affected employment population will be even greater.  Fourth, policy recommendations to cope with the impact of the real estate market on the impact of the epidemic In order to cope with the impact of the epidemic on real estate and maintain a real, stable and healthy development, we propose the following policy recommendations.  1.Provide necessary and reasonable support to the real estate industry.  In addition to providing support to the wholesale and retail, accommodation and catering, logistics and transportation, cultural tourism and other industries affected by the epidemic, we should also consider taking appropriate measures to stabilize the real estate market.It is suggested to stabilize real estate investment and sales, support reasonable financing needs of the real estate industry, and allow some real estate companies affected by the epidemic to delay repayment of loans, expedite loan extension and adjust repayment plans for enterprises.Do not blindly draw down loans, cut off loans, and press loans to restart the impact of the recent shrinking sales on the capital chain of housing companies.At present, the actual real estate financing ratio has basically recovered to the level of normal years, both in terms of stocks and increments.Violations of restrictions on real estate financing continue to tighten.Subject to legal compliance and control of risks, financing channels for real estate companies should be appropriately increased, including on- and off-balance-sheet financing of commercial banks.  2.Continue to implement the principle of “no housing or speculation.”  The real estate industry has entered a new stage of development, and “housing and living without speculation” has become an industry positioning.Relaxing this positioning may bring about rapid development at the moment, but it will overdraw the future development space and even cause economic and financial risks.This short-term behavior is not desirable.  3.Strengthen alternatives that combine supply and demand.  The impact of the current budget policy merger epidemic will hinder the demand side. After the epidemic is effectively controlled, demand may be released. If there is no sufficient supply then, a new round of house price rise may be caused by imbalance between supply and demand.Therefore, in the future period of time, it is necessary to strengthen the regularity of the supply side, increase the supply of the real estate market reasonably and appropriately, and ensure the relative stability of land prices.First, core cities should appropriately increase land supply; second, land auctions should be appropriately adjusted for policies to appropriately reduce the percentage of land bidding deposits, allow land deals to be signed, and transfer fees to be appropriately extended.If the epidemic situation affects the start and resumption of work, the start and completion time may be postponed.  4.Support rigid and improvement needs.  From the perspective of future urbanization development potential and improvement of living conditions, the real estate market still has some rigid and improvement needs.Therefore, two measures need to be taken.First, relevant policies that are not conducive to just-in-time needs and reasonable improvement of needs can be appropriately adjusted, such as the policy of “recognizing and refinancing loans”;For example, the housing provident fund deposit ratio, withdrawal time, etc.  5.Due to the policy of the city, make appropriate adjustments to the price limit policy.  Appropriately increase the intensity of market regulation.The principle of price limit for high-end projects should be clear to ensure the enthusiasm of real estate enterprises for normal land acquisition.Low-end and mid-end projects must also give reasonable room for independent pricing.After the price adjustment policy is appropriately adjusted, the “housing and living without speculation” policy will continue to be implemented, and certain projects may be subject to “restriction on sales”, loosening and tightening, preventing changes in the market and maintaining basic stability of housing.  6.In the long run, we still have to deal with the pressure of rising house prices.  Once the epidemic situation is effectively controlled, and the supply side cannot meet the suppressed demand, housing prices will rebound rapidly, especially in cities with better economic foundations such as first-tier and core second-tier, better urban management efficiency, and more developed industrial and medical resources. “”Stabilizing house prices” will remain the focus of substitution in these regions.  7.Attention should be paid to the risks of the real estate market in some third- and fourth-tier cities.  The outbreak coincided with the Spring Festival holiday, which severely hit homecoming home buyers. The property markets in the third and fourth tier cities were even worse, and they needed special attention.With the release of large and medium-sized cities and the epidemic exposing the disadvantages of third- and fourth-tier cities in logistics, public health resources, and emergency management, third- and fourth-tier cities will face greater population pressure in the future.In accordance with the requirements of the Ministry of Housing and Urban-Rural Development, we must prevent and control the real estate market risks in third- and fourth-tier cities due to the policy of the city.  8.Adhere to the expected management of real estate market adjustment.  Maintain the policy’s strength, adhere to the policy of “no housing and speculation”, reverse the long-term policy expectations, and ensure the continuity and stability of the policy.  9.Properly play the role of real estate investment in stabilizing the economy.  At present, the contribution of investment to the growth of the national economy has increased by 30%, and real estate investment accounts for about 20% of the planned fixed asset investment. If real estate consumption and the driving role of other industries are considered again, the stable real estate market can be established earlier.Substantially stabilize economic growth.  10.Avoid a large number of real estate industry collapses.  At present, the yield of housing enterprises is relatively high. Affected by the epidemic, the risk of capital chain breakage has further increased.Therefore, we need to stabilize real estate companies.In addition to making appropriate adjustments to policies such as land acquisition and pricing by real estate companies, real estate companies should be given the same fees as other companies in terms of financing, tax deductions, etc.  We cannot consider the policy of reasonably supporting the stable development of the real estate industry to consider the relaxation of real estate adjustment. This is to respond to the epidemic and stabilize the economy under the principles of “no housing and speculation”, “steady land prices, stable house prices, stable expectations”.The first policy means to promote employment and protect people’s livelihood.  (The author Sheng Songcheng is a counselor of the Shanghai Municipal People’s Government, professors of China Europe International Business School, Song Hongwei, and Wang Heng as Tongce Real Estate Consulting Co., Ltd. This is only the author’s point of view and does not represent the opinion of the working institution)