1. There will be a large number of unemployed people, and the re-employment of these people may lead to salary changes in the real estate industry;
2. The land and buildings it holds will be divided, and the industrial structure may change;
3. The auction houses and undelivered residential areas of Evergrande may face the problem of long-term shutdown, and the owners who purchase these properties may not be able to take over the building in a short time.
The real estate industry plays an important role in macroeconomic operation because of its huge industry volume and long upstream and downstream industrial chain. Although the development of the industry has experienced several rounds of cyclical fluctuations, until the Evergrande incident, there was no overall liquidity crisis of national leading housing enterprises. Regarding whether the Evergrande event will spread to related industries, whether other enterprises are facing liquidity crisis, the real estate industry and the direction of policy interpretation, Li Xunlei had a dialogue with Chen Li, head of the real estate industry of Zhongtai Securities Research Institute, and discussed in depth the ins and outs of the Evergrande event and its impact on real estate and related industries.
Li Xunlei: High leverage management has always been the core of the market questioning Evergrande Real Estate. Leverage management is also regarded as a double-edged sword in the real estate industry. Is it the direct reason behind Evergrande's crisis moment?
Chen Li: Here's an idea. High leverage is not the core factor that determines the life and death of housing enterprises. The liquidity of core assets of housing enterprises is the lifeline of enterprises. In fact, since 20 17, the overall net debt ratio of Evergrande has been declining, but the overall liquidity of the company's own real estate projects has deteriorated rapidly, which directly led to the current liquidity dilemma.
From the perspective of real estate development process, housing enterprises obtain credit funds through land and projects under construction after acquiring land. After reaching the pre-sale conditions, complete the sale of commercial housing, return the loan funds in the early stage, and carry out subsequent development through the sales return.
As far as the current situation of Evergrande is concerned, the reason for triggering risk events is not the liquidity risk brought by the weakening of the real estate market and the downward trend of housing prices. Before March 2022, Evergrande did not have the pressure of default due to the maturity of domestic and foreign open market bonds. Therefore, I don't think that high leverage has caused the current operating difficulties of enterprises. Looking at the essence through the phenomenon, the rapid deterioration of real estate sales receipts is the core factor leading to the current liquidity problem.
Li Xunlei: Under the current real estate market environment, as the financial system, especially banks, is closely related to the prosperity of the real estate industry, will the Evergrande crisis continue to spread and affect the stability of the financial system?
Chen Li: Judging from the real estate price and the spread of liquidity risk in the industry, I don't think the current problems of Evergrande will continue to be transmitted to the financial system. On the one hand, it is true that the overall operating pressure of the real estate industry has increased this year, but not all housing enterprises are facing serious liquidity risks. The central three red line supervision policies actually give the market a simple and effective risk assessment standard for housing enterprises, especially many green and yellow housing enterprises. Although facing certain growth pressure, it is not significant from the perspective of default risk, and the financing cost of stabilizing housing enterprises is even declining.
On the other hand, judging from the spread of real estate crisis to the financial system at home and abroad in the past, the reason why the financial system is usually hit is the large-scale and rapid decline of asset prices. The current liquidity crisis of developers belongs to the sporadic outbreak of individual enterprises, not because of the downside risk of housing prices in the environment of high inventory and downward demand in the whole industry. At present, under the background of "housing is not speculation", the relationship between supply and demand in the industry is relatively balanced, and the national housing prices are still relatively stable.
Li Xunlei: From the Evergrande incident to the real estate industry, in fact, since the real estate cycle of 20 18, the demand-side policy of buying houses and the supply-side policy of developers have been tightened continuously. Why did you see a decline in industry fundamentals in the second half of this year?
Chen Li: Due to the obvious changes in the internal and external environment compared with the past three years, the tightening of financing in the 20 18 industry forced enterprises to increase market supply, thus supporting real estate development investment, which reversed at the current point.
In terms of external environment, after three years of deleveraging, the pressure of industry debt maturity has dropped rapidly. Since 20 18, the debt maturity scale of the real estate industry has continued to grow. Under the pressure of debt repayment, enterprises are forced to supply soil reserves and increase sales returns to ensure the safety of cash flow, which leads to reverse changes in new construction and sales growth from 20 18 to 2020, and the industry as a whole is in a state of destocking.
However, after the second half of 20021,the maturity scale of debt declined rapidly, and the reduction of debt repayment pressure directly promoted the business direction of enterprises to shift from pursuing scale to pursuing safety, and the change of business mode directly inhibited the willingness of enterprises to take land and push the market. From the perspective of enterprise management, from the perspective of enterprise land reserve, the scale of interest-bearing liabilities of developers has been declining since 20 18, accompanied by the continuous decline of the scale of land reserve that has been started and not sold in the table. In the case of insufficient land stock, the elasticity of market supply needs to rely on incremental contributions.
In addition, since the second half of 2020, there have been frequent credit incidents in the industry, and the default scale of credit bonds has increased substantially. The balance of default bonds is 62.8 billion, while the total balance of default bonds in 20 18 to 20 19 years is only 106 billion. With the clearing of small and medium-sized enterprises, the margin of the overall supply capacity of the market has weakened.
Li Xunlei: Since September, the second batch of centralized land supply has been sold one after another. Judging from several cities that have entered the stage of centralized transaction, the enthusiasm of housing enterprises for land acquisition has not recovered as scheduled. Why is the actual land acquisition situation of real estate enterprises quite different from the market expectation after limiting the premium rate and other land auction system optimization measures?
Chen Li: We believe that the lack of motivation for developers to acquire land is not only influenced by a single factor, namely high land price. With the tightening of financing policy and the deterioration of corporate cash flow, the weakening of land acquisition ability is also the core factor of insufficient supply.
Due to the lack of funds for land acquisition and development, the scale of land reserve has been declining due to credit contraction. The combination of supply shortage and weak demand in the real estate market has further inhibited the growth of sales returns and formed a more obvious negative feedback mechanism. Even if the centralized land supply system is optimized and the willingness of enterprises to take land is improved, the overall industry has not significantly improved its ability to take land.
Li Xunlei: The recently released data of real estate in August has declined to varying degrees, and there are many voices in the market to relax real estate. How should we judge the interpretation of future policies?
Chen Li: Generally speaking, we think it is unlikely that the real estate policy will be fully relaxed. After 20 17, the regulation policy is characterized by the refinement of cities and supply and demand. Looking back at history, the marginal changes of real estate demand and supply-side regulation policies depend on the marginal changes of housing prices and the growth difference between real estate investment and fixed assets investment respectively.
However, the current market environment is significantly different from the past. In the typical downward cycle of real estate in history, the core factor of the downward trend of house prices lies in the deterioration of supply and demand. For example, in 20 1 1 and 20 14 years of 2008, the disorderly expansion of housing enterprises' credit led to high inventory growth, and the marginal weakening of superimposed demand led to a rapid decline in prices. In the current environment, due to the downward trend of land acquisition in the second half of 2020, the shortage of land market continues to be transmitted to the commercial housing sales market, and the shortage of core city markets is more obvious. There is no rapid downward pressure on house prices, and it is less likely that the demand side will be loose.
From the supply side, historically, when the investment in real estate development continues to be lower than the investment in fixed assets, which drags down the investment growth rate of the whole society, the financing policy of supply-side housing enterprises is obviously relaxed. This is also why from 20 18 to 2020, although real estate financing continues to tighten and housing enterprises continue to reduce leverage, the overall investment growth rate of the industry is significantly higher than that of fixed assets investment, and there is no need to relax the overall control policy.
But at this stage, according to the real estate data in recent months, the newly started area is weakening rapidly. At the same time, the growth rate of completed area continued to rise, and weak construction and strong completion brought about a marginal slowdown in construction scale, which further dragged down the growth rate of actual real estate development investment. With the improvement of the auction rate in the second and third rounds of land market, the mortgage payment and liquidity of high-quality housing enterprises can be moderately increased, and the downside risk of real estate development investment brought about by the spread of auction phenomenon can be alleviated.