The Zhitong Finance App learned that according to a research report released by Guotai Junan International, according to the People's Bank of China, the five-year LPR of commercial banks, as the benchmark for adjusting mortgage interest rates, was lowered from 4.20% to 3.95% on February 20, 2024. The biggest decline in LPR in history (-25 basis points) is also the first reduction since June last year. The bank believes that after the Spring Festival, the government stepped up efforts to stimulate demand for credit and sent a positive signal. The bank believes that the LPR cut in February, combined with recent policy relaxation in first-tier cities, should help stimulate the housing market. Looking ahead to real estate sales in March 2024, the bank believes “Xiaoyangchun” is expected, which may exceed market expectations.

Guotai Junan International's views are as follows:

The People's Bank of China cut the five-year loan market quoted interest rate (LPR) more than expected.

According to the People's Bank of China, the five-year LPR for commercial banks, as the benchmark for adjusting mortgage interest rates, was lowered from 4.20% to 3.95% on February 20, 2024. Although the market already fully anticipated this reduction in LPR, the bank believes that this reduction has exceeded market expectations. This is the biggest drop in LPR in history (-25 basis points), and the first reduction since June last year. After the Spring Festival, the government stepped up efforts to stimulate demand for credit, sending a positive signal. The bank believes that the LPR cut in February, combined with recent policy relaxation in first-tier cities, should help stimulate the housing market. Looking ahead to real estate sales in March 2024, the bank believes “Xiaoyangchun” is expected, which may exceed market expectations.

The reduction will also help stabilize housing prices.

Currently, the large gap between mortgage interest rates and rental return is an important factor curbing demand for home purchases. This is also one of the reasons for the “wave of early loan repayment” last year. The bank believes that a reduction in risk-free interest rates will reduce the requirements for return on property rents, thereby helping to stabilize housing prices.

The bank believes that although there is still a downward trend in housing prices, the market is expected to gradually reach a new balance when risk-free interest rates decline and rental returns increase. At this stage, lowering LPR will help the market reverse pessimistic expectations. Overall, the bank believes that the goal of this year's policy is to see the housing market stabilize, not to stimulate the market to reverse in the short term.

Real estate sales during the Spring Festival are still not very optimistic.

As expected, the recovery in real estate sales during the Spring Festival lacked momentum due to weakening demand from residents returning to their hometowns to buy homes. According to data from the China Index Research Institute, during the Spring Festival holiday period (February 10 to February 17), the average daily sales area of new homes in the 25 representative cities decreased by about 27% compared to the previous year's Spring Festival holiday. On the other hand, the bank also observed some positive changes in first-tier cities. According to data from the China Index Research Institute, the average daily transaction area of Shanghai and Shenzhen during the Spring Festival holiday increased by 126% and 125%, respectively, compared to last year's Spring Festival holiday. The bank expects that sales momentum in first-tier cities will continue to improve after the Spring Festival holiday.

The bank anticipates that a wave of successful debt restructuring may bring opportunities.

Starting from the possibility of a reversal of the predicament, the bank believes that Xuhui Holding Group (00884) and Sunac China (01918) may be the beneficiaries. As far as industry fundamentals are concerned, considering the acceleration of the “three major projects” in 2024, especially the renovation of urban villages, the bank expects the real estate industry to continue to recover moderately in 2024. Among high-quality companies, the bank recommends China Merchants Shekou (001979.SZ), Poly Development (600048.SH), and Vanke (02202). At the same time, the bank recommended Sino-Singapore Group (601512.SH), which has an industrial park business. Under the influence of favorable industrial policies, its growth prospects are good.

Risk warning: 1) re-liberalization of pre-financing, upward industry leverage; and 2) declining demand for home purchases.