2021 was undoubtedly the most difficult year in the history of real estate companies in China, and it can be said that the industry as a whole is now facing daunting challenges. However, recently, including financing policies, the real estate market is now facing policy relaxation. Market participants believe that under the main policy tone of non-speculation in housing, the current "policy bottom" of the real estate market has been formed. Even though the industry enters a trough, the future direction of the real estate industry and related enterprises in the coming period will still receive high attention in China. In the view of researchers from ANBOUND, real estate will still face a pattern of "market-clearing" in the future. In this risky process, it is necessary to pay attention to risk control to prevent spillover effect.
Currently, the policy signals related to encouraging consolidation in the real estate industry have become more and more obvious. Recently, the People's Bank of China (PBoC), the China Banking and Insurance Regulatory Commission (CBIRC), and the State-owned Assets Supervision and Administration Commission (SASAC) convened a symposium on some private and state-owned real estate companies and major commercial banks to encourage high-quality companies to increase mergers and acquisitions of real estate projects in accordance with the principle of marketization, and at the same time encourage financial institutions to provide financial services for it. At the beginning of December, in response to relevant issues of Evergrande, the relevant authorities in China also clearly pointed out that at the present stage, real estate development loans and M&A loans should be issued reasonably according to the different conditions of various localities. Industry observers believe that straightforward and explicit support for a certain type of loan business is rare in regulatory statements, which is also sending a strong signal to the market. What is more obvious is that the PBoC and CBIRC reportedly encouraged banks to carry out M&A loan business in a safe and orderly manner, focusing on supporting high-quality real estate companies to merge and acquire high-quality projects of large real estate companies that are risky and difficult. It is worth noting that the policy makes it clear that M&A loans are directed to high-quality real estate enterprises, and the target is limited to projects rather than corporate equity.
These policy changes, for housing enterprises, mean that the differentiation of the industry will be further intensified. The current leading companies and the "green" companies not on;y can continue to raise funds and replenish liquidity, but also obtain financing support for mergers and acquisitions of real estate companies and development projects. However, for real estate enterprises that are already on the verge of default and collapse, the situation is not so optimistic. These companies will still face contraction in sales, supply, and financing. Buyers, suppliers, financial institutions, and local governments have not re-accepted these real estate enterprises because of policy relaxation. For problem enterprises, both the credit environment and the business environment are still facing challenges and may be eliminated by the market.
Of course, from a policy point of view, the focus is to prevent the spillover and chain reaction caused by the unprecedented crisis of these real estate enterprises. It is neither to rescue troubled companies nor to burst the real estate bubble. As far as the importance of real estate to China's economy is concerned, the domestic real estate industry does not have the problem of rapid change of status and role, or even its demise, but the development direction of the industry should be more stable and standardized. More importantly, the logic of its development will change fundamentally. As Gao Shanwen, Chief Economist of Anxin Securities, pointed out that with the continuous advancement of deleveraging, increased supervision of loan concentration and so on, especially with the outbreak of this industry's liquidity crisis as a symbol and turning point, the high turnover model of the real estate industry should have come to an end. The real estate industry has entered the stage of "low growth, low profits, low expectations, and low fault tolerance", and will inevitably experience a long period of major reshuffles. Only if those enterprises with high leverage and fast turnover are eliminated and disappear, then the share of the industry can be more concentrated among stable leading enterprises, and the development of the industry can move towards a healthy development path. From this perspective, the overall downward problems of the industry caused by a series of previous regulations and control should be defined as the process of industry clearing.
The context of the real estate industry is becoming clearer, but its process and continuous cycle are uncertain, which is closely related to policy trends, market conditions and corporate capital chain factors. Judging from the current reality, the "policy bottom" has already appeared, but the emergence of the "market bottom" and the "capital bottom" of enterprises will take time. The latest market data show that the real estate market continued to cool in November 2021, with the volume of commercial residential transaction in 29 key urban housing falling by 4% month-on-month, with a year-on-year decline of 32%. The monthly performance of the TOP 100 real estate enterprises fell by 3.4% sequentially from October. The monthly performance also continued the downward trend since July, and the decline further widened to 37.6%. Although the recent thawing of housing-related financing and the improvement of the margin of personal mortgage loans are conducive to the recovery of the real estate market, it is difficult to assert that the market will rebound from the bottom soon. Due to the continuous unprecedented crisis of the real estate enterprises, market sentiment and expectations will form great bearishness for the market. With the clearing process of the industry, considering the debt structure of domestic real estate enterprises, this may become more obvious in the coming period.
Judging from U.S dollar bonds alone, there have been many issue involving redemptions in 2021. What's more serious is that most Chinese real estate companies moved to high-frequency issuance of foreign bonds in 2017, and most of the dollar bonds issued by real estate enterprises have a maturity of 1-5 years, and 2022 will thus be the year of maturity of U.S dollar bonds in the entire industry. According to statistics, the maturities in the four quarters were RMB 98.33 billion, RMB 98.39 billion, RMB 85.26 billion and RMB 74.04 billion respectively and the first half of the year was the peak of maturities. As for larger China's domestic bonds, there will be a peak period of concentrated maturities in the first half of 2022. In the case that confidence in the property market cannot be restored in the short term, some highly leveraged, highly indebted real estate enterprises will face an unprecedented crisis with the peak in debt servicing in early 2022. Therefore, it is also true that the industry is likely to have a centralized accelerated time frame between now and the first half of next year.
According to ANBOUND, the scale of the real estate industry is huge and involved many related industries. The clearing process will breed high degree of risk, and whether it can be safely and steadily promoted is related to the overall stability of the Chinese economy. It is therefore necessary for the Chinese authority to push forward the process of clearing the real estate market risk in a steady and orderly manner, so as to reduce the possibility of secondary risks.
Final analysis conclusion:
The transformation of industrial development logic and the signals sent by regulatory policies have made it clear that the Chinese real estate industry will definitely undergo a significant process of clearance. From a comprehensive point of view of policy, market and enterprise-level factors, the peak period of industry integration will be imminent. As the risks are gradually exposed, the method to promote a steady progress will directly affect the overall situation of China's stable economic growth.
