The real estate industry has ushered in major favorable policies. Purchase restrictions have been relaxed in many places, and mortgage relaxation policies have exceeded expectations. Trade-in and state-owned assets collection and storage are expected to accelerate. The sales side and financing side are taking multiple measures together to help the building materials industry recover demand and improve repayments, and priority benefits for consumer building materials in the real estate chain.
The Zhitong Finance App learned that SDIC Securities released a research report saying that the real estate industry has ushered in major favorable policies, relaxed mortgage policies have exceeded expectations, trade-in and state-owned assets collection and storage are expected to accelerate. The sales side and financing side are taking multiple measures to help the building materials industry recover demand and improve repayment. Consumer building materials in the real estate chain will benefit first. It is recommended to focus on high-quality leaders in various segments to benefit from improved expectations in downstream supply and demand, easing capital pressure on housing enterprises, gradual recovery in project demand, and increased industry concentration.
The main views of SDIC Securities are as follows:
The central bank's mortgage relaxation policy exceeded expectations, and the lifting of purchase restrictions in many places helped improve real estate sales
China Investment Securities pointed out that following the active setting of real estate policies at the Politburo meeting on April 30, buyer-side policies have been intensively released since May, and several cities have lifted purchase restrictions or continued to optimize purchase restriction policies. On May 17, the central bank announced three mortgage policies on the home buyer side, involving reducing the down payment ratio for the home loan (minimum down payment ratio: 15% for the first home, 25% for the second home), reducing the interest rate on provident fund loans (interest rates for the first set of 5 years or less were reduced by 0.25 pct to 2.35% and 2.85%, and the interest rate for the second set was adjusted to no less than 2.775% or 3.325%), and abolishing the lower interest rate limits for commercial loans. The relaxation of the policies exceeded expectations. Currently, purchase restrictions and mortgage easing policies continue to increase, and the subsequent recovery in real estate sales data is worth looking forward to, fully helping to improve demand and repair valuations of building materials companies in the real estate chain.
60+ cities support real estate “trade-in”, and the process of collecting, storing and removing state-owned assets is expected to accelerate
Since 2023, more than 60 cities in China have expressed support for “trade-in” housing. Through various models such as “priority sale” through intermediaries or the acquisition of existing housing by state-owned enterprises, it is expected to be promoted in more cities in the future to drive sales of second-hand housing and new homes. Furthermore, the process of collecting and storing state-owned commercial housing may be accelerated. On May 14, Lin'an District of Hangzhou announced the acquisition of a batch of commercial housing for use as public rental housing. On May 17, the Ministry of Housing and Construction proposed that the city government insists on “ordering as needed”, that local state-owned enterprises can organize local state-owned enterprises to buy some of the commercial housing stock at a reasonable price for affordable housing, and that the central bank will clearly set up reloans for affordable housing, with a scale of 300 billion yuan. It can drive 500 billion yuan in bank loans, combined with the issuance of ultra-long-term treasury bonds. China Investment Securities believes that subsequent state-owned assets may continue to make efforts to collect and store new homes and secure housing construction in the “three major projects.”
The working tone of the insurance handover building remains unchanged, and the financing coordination mechanism for housing enterprises continues
The 2023 housing warranty policy was actively promoted, and the real estate completed area remained high throughout the year. Previously, the market anticipated that the completed area in 2024 may be under pressure based on a high base, and the previous policy tone was unclear. At the State Information Office meeting on May 17, the Ministry of Housing, Urban-Rural Development stated that the Ministry of Housing and Construction, together with the General Administration of Financial Supervision and other departments, will introduce a work plan for urban commercial housing projects to secure housing, sort and dispose of commercial housing projects under construction that have not been delivered, and promote project construction and delivery.
In January 2024, the Ministry of Housing and Construction and the General Administration of Financial Supervision issued the “Notice on Establishing a Coordination Mechanism for Urban Real Estate Financing”, proposing the establishment of a coordination mechanism for urban real estate financing. Recently, the Ministry of Housing and Construction once again proposed that the city government “make every effort” to promote projects that meet the “white list” conditions, and that commercial banks “fully finance” projects that comply with the “white list” to meet the reasonable financing needs of projects under construction. In the future, with the implementation and use of relevant financial support, it will help relieve financial pressure on housing enterprises and prioritize recovery on the completion side of production. It is expected that consumer building materials repayments, cash flow, demand and profit indicators will fully benefit.
Consumer building materials business indicators are expected to improve, and real estate recovery is expected to be steady in non-housing demand
Previously, consumer building materials were greatly affected by the decline in real estate, the epidemic, and raw material prices. Operating growth has slowed and profitability has declined. Currently, it is expected to recover. The pressure on raw material prices has decreased, and the big B, small B and C sides are working together. New products and new businesses are growing rapidly. At the same time, industry concentration has increased to a certain extent, industry leaders have developed more steadily, and gross margins have improved. In the context of the downturn in the real estate industry, some enterprises carried out large-scale impairment charges on accounts receivable between 2021 and 2023, and risk release was sufficient.
With the implementation of the policy, real estate business demand is expected to recover and business repayments are expected to improve. It is worth looking forward to continued improvements in the performance growth rate, profit level, and cash flow of industry leaders in the future. Most of the leading consumer building materials companies expand infrastructure and C-end retail businesses based on traditional real estate needs to optimize the downstream customer structure. In 2024, China's infrastructure investment continued on a steady growth trend. Varieties with obvious C-side attributes benefited from the increase in demand for heavy housing stock, and non-housing demand provided strong support for the development of the building materials industry.
Risk warning: Policy implementation falls short of expectations, raw material prices rise, market competition intensifies, and repayments fall short of expectations.