The Zhitong Finance App learned that Bank of China International released a research report indicating that real estate fundamentals are still weak due to factors such as current residents' income and employment expectations being weak, some demand for home purchases being overdrawn in the early stages, residents' concerns about the delivery of new homes, and increased wait-and-see sentiment due to falling housing prices. However, various recent statements from the central government have sent positive signals. Macro and industry supply and demand policies are also expected to continue to gain strength, and market expectations and confidence may be gradually restored, pushing the relationship between supply and demand in the real estate industry to reach a new balance point, thereby providing support for the smooth operation of the economy. The core focus of this year is still on mitigating liquidity risks.

Bank of China International believes that under pressure from a large capital gap, housing enterprises that can safely overcome the bottleneck period and get out of trouble by benefiting from policy support have become the focus targets of this year. Looking at the long-term main line, it is recommended to focus on market opportunities for a reversal at the bottom.

At this stage, it is recommended to focus on four main lines:

1) Central state-owned enterprises with no liquidity risk and good land acquisition and sales fundamentals: Poly Development (600048.SH), China Resources Land (01109), C&D International Group (01908), Yuexiu Real Estate (00123), Huafa Co., Ltd. (600325.SH), Greentown China (03900).

2) Private enterprises with a relatively high safety factor: Binjiang Group (002244.SZ) and Midea Real Estate (03990).

3) Companies that have recovered from the bottom and are more flexible: Jindi Group (600383.SH), Longhu Group (00960).

4) Those with opportunities for urban village renovation and guaranteed housing construction, or REITs related topics: CCCC Real Estate (000736.SZ), Urban Construction Development (600266.SH), Nanshan Holdings (002314.SZ).

Bank of China International's main views are as follows:

The National Bureau of Statistics announced the national real estate development investment and sales situation for January-February 2024: sales area of 114 million square meters in January-February, year-on-year growth rate of -20.5% (previous value: -12.7%); development investment amount of 1.18 trillion yuan, year-on-year growth rate -9.0% (previous value: -12.5%); new construction area of 94.29 million square meters, year-on-year growth rate of -29.7% (previous value: -10.3%).

The Bureau of Statistics disclosed the year-on-year growth rate, stating that the growth rates of investment, sales and other indicators are calculated on a comparable scale. There are incomparable factors between the data for the reporting period and the data for the same period published last year, and the growth rate cannot be directly compared. 1) Starting in March 2023, the Bureau of Statistics will adjust the calibrations of indicators such as sales and investment to exclude checkouts, investment in non-real estate development projects, and sales data with collateral properties. 2) Starting from January to February 2024, the Bureau of Statistics will further clarify the criteria for defining statistics on real estate development, include projects that meet the statistical standards for real estate development in the scope of statistics, and exclude non-real estate development projects such as simple first-level land development. The sales and investment-related values in the following report all use the year-on-year growth rate directly announced by the Bureau of Statistics.

Commercial housing sales: The decline in sales increased significantly to more than 20%, and housing prices continued to face downward pressure

1) The decline in commercial housing sales increased significantly. The sales area in January-February was 114 million square meters, down 20.5% year on year, up 7.8 percentage points from December; sales amount was 1.06 trillion yuan, down 29.3% year on year, up 12.2 percentage points from December. Among them, the residential sales area decreased by 24.8% year on year, and the residential sales amount decreased by 32.7% year on year. January-February is the traditional low season for sales.

2) The average sales price has declined markedly. The average sales price of commercial housing in January-February was 9,294 yuan/square meter, down 7.7% from December and 11.1% year on year; of these, the average sales price of residential housing was 9,653 yuan/square meter, down 8.8% from December and 10.5% year on year.

3) From a regional perspective, the year-on-year sales area growth rates in the East, Central and Western regions in January-February were -17.7%, -24.0%, and -21.7%, respectively, and the year-on-year declines were 7.7, 2.4, and 11.5 percentage points higher than in December; the year-on-year growth rates of sales amount were -31.0%, -28.6%, and -25.3%, respectively, and the year-on-year declines were 13.4, 8.8, and 13.8 percentage points respectively; the year-on-year growth rates decreased by 7.6, 8.3, and 3.2 percent, respectively. point. Due to the high base last year, the year-on-year sales in March are likely to be under pressure, but there will be a significant recovery from month to month, but compared to “Xiaoyangchun” in previous years, it is still expected to be weak.

Real estate development investment, new construction, and completion: New construction fell by nearly 30%. Continued slump in land investment and construction investment dragged down real estate investment

The amount of development investment in January-February was 1.18 trillion yuan, down 9.0% year on year, and the decline was 3.5 percentage points narrower than in December. Among them, the amount invested in housing development was 882.3 billion yuan, down 9.7% year on year, and the decline was 4.1 percentage points narrower than in December. However, due to adjustments in investment caliber, the year-on-year growth rate in January-February is incomparable to the year-on-year growth rate in December. Affected by many factors such as the continued weakening of market volume and prices and the continuous contraction of housing companies' financing, the supply side of the industry has shrunk sharply, and housing enterprises continue to be under pressure to acquire land and start new construction, dragging down investment in real estate development. In January-February, the new construction area was 94.29 million square meters, down 29.7% year on year. The decline was 19.4 percentage points higher than in December, and the construction area fell as high as 11.0% year on year.

From a regional perspective, the eastern region, which is dominated by core cities, saw a relatively minimal decline. Investment growth rates in the East, Central, and Western regions were -5.6%, -10.7%, and -19.0% year-on-year respectively. The declines increased by 2.3, 5.4, and 12.0 percentage points, respectively, from December.

The completed area turned negative year on year after 12 consecutive months of positive growth. The completed area in January-February was 104 million square meters, down 20.2% year on year, and the growth rate decreased by 35.5 percentage points from December. This is the first negative growth since February 2023.

Developer funding: The decline in funding available to housing enterprises has widened, and weakening sales repayments are the main reason

In January-February, housing enterprises received 1.62 trillion yuan in capital, a year-on-year decrease of 24.1% (previous value: -15.8%). 1) Housing expenses were 684.4 billion yuan, a year-on-year decrease of 35.4% (previous value: -21.2%), affected by sluggish sales in the previous period. Deposits and advance payments decreased by 34.8% year on year, up 13.3 percentage points from December, personal mortgage loans fell 36.6% year on year, and the decline was 16.0 percentage points higher than in December. In February, medium- and long-term loans to the residential sector decreased by 103.8 billion yuan, a year-on-year decrease of 190.1 billion yuan, and a month-on-month decrease of 731 billion yuan. On the one hand, it was affected by the misalignment of the Spring Festival and extended holidays. On the other hand, it also showed that real estate sales were still sluggish, and residents' demand for home purchases was still weak.

2) Non-housing loans amounted to 934.9 billion yuan, a year-on-year decrease of 13.0% (previous value: -9.7%). Domestic loans in China amounted to 314.4 billion yuan, down 10.3% from the previous year. The decline was 0.6 percentage points narrower than in December. Benefiting from recent efforts to actively promote the implementation of real estate financing coordination mechanisms in many places, the continuous implementation of bank loans at the real estate project level, and improvements in bank loans to housing enterprises. Self-raised capital amounted to 537.4 billion yuan, a year-on-year decrease of 15.2%, an increase of 12.2 percentage points over December.

Bank of China International believes that there should also be more substantial support for subsequent bond financing. On the one hand, it can stabilize market confidence. On the other hand, due on a large scale this year, being able to borrow new and old in a timely manner is also one way to prevent large-scale default.

Risk warning:

Real estate regulation has been upgraded; sales have declined beyond expectations; financing has been tightened.