HTSC: Policy boosts market confidence and provides valuation recovery space for the real estate sector.

Zhitong App learned that HTSC has released a research report stating that on January 25th, a spokesperson from the China Banking and Insurance Regulatory Commission stated at a press conference held by the State Council Information Office that they will continue to promote various measures to maintain the healthy development of the real estate market, and focus on implementing financing policies, financial support for personal loans, and the construction of three major projects. The regulatory authorities have once again strengthened their support, and it is expected that the policies will boost industry confidence and provide valuation recovery space for the sector. The sustainability depends on the speed and extent of the fundamental recovery. It is recommended to pay attention to real estate companies with abundant reserves in core cities and those with stable operations.

▍HTSC's main points are as follows:

The China Banking and Insurance Regulatory Commission emphasizes the importance of the real estate industry and further strengthens financial support

The regulatory authorities have made a clear statement this time, emphasizing the importance of the real estate industry and the strengthening of support. This round of financing policies started with the "16 Financial Measures" launched in November 2022, and the "Three Arrows" will be fully implemented in 2023. The Central Financial Work Conference in October proposed to "treat all types of real estate companies equally and meet their reasonable financing needs," which has received positive responses from various ministries:

In November, three ministries jointly proposed quantitative guidance requirements of "not less than three"; in January 2024, the Ministry of Housing and Urban-Rural Development and the China Banking and Insurance Regulatory Commission proposed to establish a coordination mechanism for urban real estate financing in cities at and above the prefecture level. On the 24th, the two ministries issued a document to optimize the support of operating property loans for real estate companies' cash flow. Overall, the regulatory authorities are gradually implementing the details of financial support for the real estate market.

What other policies can be expected at this point?

According to this press conference, the main work that the China Banking and Insurance Regulatory Commission will carry out in the future includes the following three points: 1. Accelerate the implementation of the already launched policies. On the one hand, promote the implementation and effectiveness of the coordination mechanism for urban real estate financing, and hold deployment meetings to require banks to take action as soon as possible. On the other hand, guide the implementation of management requirements for operating property loans;

1. Provide financial services for personal loans and propose support for further optimizing down payment ratios, loan interest rates, and other personal loan policies. According to data from the China Index Academy, the interest rate for first-time home loans in 100 cities in January reached a new low, but the interest rate for first-time home loans in first-tier cities is still above 4%, and the interest rate for second-home loans in 7 cities is still above 4.4%. This statement may open up space for downward adjustment of loan interest rates;

2. Strongly support the construction of the "Three Major Projects" and quickly generate physical work volume. Since the end of last year, 350 billion yuan of PSL has been implemented, and many places are also implementing it.

While policies boost market confidence, they also provide valuation recovery space for the sector

Since 2023, the real estate sector has undergone significant adjustments, and the market's focus is on two aspects: 1. Signals of stabilization in sales and housing prices. According to tracked high-frequency data, from January 1st to 22nd, 54 cities saw a year-on-year decrease of 32% and a month-on-month decrease of 27% in the cumulative transaction area of new homes; 26 cities saw a year-on-year increase of 33% and a month-on-month decrease of 5% in the cumulative transaction area of second-hand homes. The KMI index of second-hand housing transactions by Beike is 36 (as of January 21st), which is at the 27th percentile level since 2020, indicating that transactions and market expectations are at the bottoming stage. 2. Performance expectations for real estate companies. The downward trend in housing prices in 2023 may increase the impact of asset impairment losses on the net profits of real estate companies in 2023. A series of statements from relevant departments are expected to boost market confidence and provide valuation recovery space for the sector, with sustainability depending on the speed and extent of fundamental recovery.

Risk Warning:

Industry policy risks; industry downturn risks; operational risks for some real estate companies.